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An end to the pay taboo - how to personalize employee compensation

At a time of stagflation and worries over the cost of living and utility bill shock, it’s natural that many of us will be looking at our compensation packages and checking whether we’re receiving the rewards that the quality of our work should command.

The situation is especially urgent in Europe, which lacks the maturity of the US in compensation personalization. Across the Atlantic, rules are increasingly demanding transparency on compensation, with several states introducing legislation resulting in a culture of openness emerging on pay ranges and structures.

Despite the EU parliament passing a directive to negotiate with member countries on pay transparency legislation, it is not clear when it will become a legal mandate in Europe.

However, there is growing encouragement for Europe to fall in line with America, not just because it makes sense for organizations that want to have a single global model but because the trend to formalize compensation disclosure could have downstream impacts even on non-multinationals.

More important than ensuring global consistency, though, compensation personalization and transparency will help retain talent and build a strong culture and brand.

Think differently

We need to take a new approach to compensation. In the past, base salary, short-term incentives such as bonuses, and long-term incentives such as stock shares have been used as the main levers in differing degrees to build compensation packages.

We need policies to expand beyond these narrow rewards with managers able to offer custom compensation packages that boost employee morale and engagement.

Compensation personalization isn’t without complexity, however. Highly unionized sectors will often see pay bands negotiated, and civil servants also often operate within formal pay grades. Also, many lower-ranking performers often feel content with the band system. But if you want to attract and keep the most talented people, rewarding them on a personal basis demands attention.

This must be driven by careful analysis and a strategy for explaining where people sit within a range. This is not without nuance: grade people low, and they may feel demoralized, while others may be content to be on a low band because it gives them scope for growth rather than being on a high grade but with a ceiling, meaning static rewards. It’s a complex and sensitive area. But above all, what is critical is to communicate, explain your thinking on the proposed package, and set goals for improvement.

Often the challenge is not so much one of explaining to employees but to their managers. Some managers don’t understand the compensation personalization concept: they may think it’s fake or else opaque.

Among the most significant frustration compensation professionals have is dealing with constraints from leaders and their lack of a policy. Top executives have often grown up in a system that worked for them and an attitude of “if it ain’t broke, don’t fix it.” But you must persist: a culture of silence or obscurity quickly becomes toxic and can lead to all sorts of misunderstandings, jealousies, and antagonism.

It’s no good to say, “I’d love to pay you more, but the boss/system/economy won’t let me,” we need structure.

A checklist

Creating a framework for compensation personalization can be based on the answers to the following questions:

  • Do you have a clear and communicable policy on compensation? How much do you pay and why?
  • Is there a clear structure for career advancement?
  • Do you regularly collect and use data on pay, such as competitive rates and staff satisfaction?
  • Do you have flexibility in how you can quickly adapt rewards, for example, to tailor rewards to individual preferences?
  • Does your organization provide clear guidance on compensation to managers?
  • Do you communicate clearly and across channels that employees use?
  • Do you use specific compensation software and complementary performance management modules?
  • Do you regularly review your compensation model and receive feedback on it?

A test

One simple question for compensation managers that I often ask: can you write down your plan of action? Being able to explain a simple strategy triggers a clear understanding of the value proposition you offer to employees. You can deal with any outlier situations after that, but if you don’t understand the offer you’re making, then you can’t expect your people to know.  

Personalization requires benchmarks, so develop them, communicate them, and then formalize processes, so your compensation model is repeatable but configurable for subsequent tweaking if needed.

It helps a lot if your software is also designed as a suite with integrated complementary components for talent acquisition/management, core HCM, and other elements that touch on compensation.

This is the age of personalization. We expected marketers to target us based on our tastes, buying history, and preferences. We often see research pointing to manager/employee relationships, training, career opportunities, and culture being nominated as key reasons for attracting and retaining people. But there can be no doubt that compensation packages are key too, so it’s time to pay attention… and pay what individual people deserve.

How Unit4 can help your organization with compensation personalization

Unit4 HCM software for compensation planning will allow you to plan, make and communicate pay decisions in a single, simple-to-use, and easy-to-implement solution. You can deliver clear, accessible information that today’s workforce expects around pay decisions and opportunities. You can also define your unique programs, policies, and compliance requirements in the solution, gain insight into your organization, identify trends and issues, and create a single source of truth for all compensation planning data.

Our next-generation enterprise solutions power many of the world’s most people-centric mid-market organizations. Our state-of-the-art cloud platform, ERPx, brings together the capabilities of HR, Financials, Procurement, Project Management, and FP&A onto a unified cloud platform that shares real-time information and is designed with a powerful, people-centric approach, so employees can benefit from better insight and become more effective and increasingly engaged. It supports rapid and continuous change while delivering an individualized fit for customers at scale, delivering the right tools to unify the processes across their organization and connect their people.

You can check out our suite of solutions here.

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