Compensation Strategies for Different Workforce Generations

Employees are the most valuable assets of any organization. The main purpose of human resource management (HRM) is to manage the development and performance of people employed in an organization. Some of the important tasks of HRM include attracting and retaining employees with the right skills and abilities, match people to the right positions within an organization and to align employee’s goals and objectives with that of the organizations. All these key tasks are directly or indirectly affected by compensation and benefits plan which the human resource management decides.

Compensation and benefits redefines value and success in any workplace. An efficient compensation and benefits strategy is seen as an opportunity by organisations to differentiate them-self from their competitors, who may otherwise take away talented workforce. Hence, organisations need to know the evolving needs of the working population to make sure they offer the most competitive package.

Compensation is a major driver in the success of any organization and it is also true that it is one of the highest expenses for an organization. Therefore, compensation is always under heavy scrutiny by the top executives of a company. Compensation is not only carefully analysed by the management, but also analysed by employees and prospective employees. If properly executed, effective compensation design can improve organizational effectiveness, support human capital requirements of the organization, and motivate the employees to achieve key corporate strategic and financial goals. Effective compensation and benefits strategy is no easy task, especially with the large organizations and ever-changing demands of the workforce.

To construct the most attractive compensation and benefits package, organizations must now tackle the fundamental landscape change in workforce requirements and demands. Employees born in the 60s and 70s (generation X) have ceded place to a new generation of workers (generation Y). A flexible approach to compensation and benefits is now required to satisfy the different priorities of these generations. ‘Planning for the future’ has long been the motto governing Generation X’s approach to their careers and so, traditionally, generous pension provision has been the key to attracting workers. But for Generation Y, priorities have changed. For instance, in a research conducted last year, just 4% of 16-24 year olds were attracted to their employer because of their pension contribution, compared to 17% of 45-54 year olds. Certainly, younger workers are increasingly questioning the customs and traditions of the workplace and now pension plans, previously synonymous with security, are considered unstable.

In present day environment, employees have become much more educated on the possibilities available to them with sources like online salary calculators, industry chat rooms and so on. Employees now know more about current market pay levels, new opportunities and how to successfully negotiate compensation packages. Keeping these changes in mind organizations include many other non-cash components to the potential cash components to come up with a fair, competitive and an attractive compensation program.

Employee benefits are indirect forms of compensation provided by the organizations to their workforce as part of an employment relationship. To compete for quality employees in today’s marketplace, employers must do more than offer a fair salary. Employees also look forward for a good benefits package; in fact employees have grown accustomed to generous benefits programs, and join an organization expecting them. Employee benefits exist in organizations all around the world and the levels and range of these benefits vary between countries. Some of the benefits companies offer can be like company accommodation, company provided vehicles, health insurance, retirement benefits, easy loans and so on.

There are three primary components in a strategic compensation plan. First, building a solid foundation for the plan to understand the business strategy is required. Where the company is now and where is it heading to in the future, what are its short term and long term goals. This will provide the necessary information needed to construct a solid framework for the design of a compensation plan. Second, understanding organizational capabilities and how the role of compensation plays a key role to achieve organizational goals is critical. This will provide an excellent understanding of what positions are the most critical to a company’s future success and the various compensation options available to motivate employees to achieve this success. Third, aligning compensation with human capital management initiatives will help develop a plan that allows the company to successfully recruit and retain employees.

Compensation and benefits have a negative effect on the company if not properly managed. Collapses of big companies like Enron and Global crossing are examples. These are direct results of managerial behavior aimed at short term profit maximization. That behavior is in turn a result of the executive pay structure that measure and reward performance based short-term financial results.

Compensation experts need to be at the focal point where strategy, organizational effectiveness and human capital management congregate. They need to have a clear understanding of the business and organizational issues as well as the future direction of the company. Strategic compensation and benefits design is not a sound bite to impress management. It’s the process behind compensation plan design that links and binds strategy, organization effectiveness and human capital together. By balancing organizational, employee and business needs with a company’s financial and strategic goals it is possible to develop the right compensation strategy to motivate, reward and sustain high levels of performance. By finding this balance, a company can effectively use compensation to execute and achieve desired business results.