Successful Retention Strategies (Part 3 of 4): Total Rewards
With 3/4 of 2022 behind us, and despite record inflation and fears of recession, we are still seeing the most robust labor market in recorded history. Despite news of layoffs at FAANG companies, the broader tech sector, and retail giants such as Walmart and Target, candidates still have more choices and power in the labor market than ever. Even with historic wage growth of over 5% YoY, wages still significantly lag inflation leading to a net wage growth of below -3%. Technology improvements and the continued failure of businesses to appropriately demonstrate caring and support for their people are still significant drivers of the current Great Resignation, which is rapidly becoming “Quiet Quitting” and “Ghosting” as employees – well, they stop showing up for their jobs rather than provide appropriate notice.
We are still seeing that resignations are not impacting all businesses, industries, and sectors nor all career levels equally, yet all segments are impacted, nonetheless. Even the Executive level (Vice President through C-Suite) continues to cash in on this wave, driving up base salaries, signing bonuses, and restructuring bonus packages to be more favorable to them and less so to the companies they serve.
This is the third of a 4-part series addressing Onboarding, Recruiting, Total Rewards, and Organizational Design strategies that collectively affect and reflect the retention strategies of an organization. As shared in the previous two articles in this series, there continues to be an absence of a single silver bullet to stop the resignation trend. There is still too little attention placed on the one focus area with the highest probability of making the most positive and significant impact stabilizing the challenging labor and employment market. That focus – RETENTION STRATEGIES. In this article, we will shift our focus toward the role that Total Rewards play in employee retention.
Total Rewards is a combination of both compensation and benefits. The term benefit is not intended to be applied exclusively to medical, dental, and vision benefits. Any benefits – vacation, sick pay, parental leave, tuition reimbursement, continuing education, Flexible Spending Accounts for Child Care, and more all fall into this category. When we open our minds and eyes to the breadth of options in the benefits category of Total Rewards, it is easy to see that there is an entire untapped arsenal of options available to retain top talent.
That is not to say that compensation is not important. Still, we want to call out that many companies have relied too heavily on direct compensation as a retention tool and too little on other forms of compensation. Without getting too deep into the weeds, let’s look at some amazing ways Total Rewards can be leveraged to drive up retention and reduce unwanted attrition or turnover.
In the years 2000 through 2019, the average annual wage increase in the US was 2.92% (Average Wage Index (AWI) (ssa.gov)), and the average inflation rate was 2.10% ($160,000,000 in 2000 → 2019 | Inflation Calculator (officialdata.org)). This does not mean that wage increases were evenly distributed. CEO pay alone from 1978 – 2018 grew 1,007.5% vs. 11.9% for the average worker over the same period (CEOs see pay grow 1,000% and now make 278 times the average worker (cnbc.com)). However, overall average wage growth was close to where inflation existed, justifying in the eyes of employers the 2-3% annual wage increases most employees who performed well in their jobs were used to seeing. But the pandemic upended all of this.
There are many levers that compensation specialists have at their disposal beyond base compensation. Cassandra Faurote, Owner and CEO of Total Reward Solutions in Indianapolis shared some revealing trends in total rewards. Some of these have a minimal impact on the bottom line, and it was very eye-opening to see just how little it could take to obtain and retain top talent.
According to Cassandra, “A new and very hot back-to-office perk is a Pet Stipend. This is a monthly sum that can be used on dog walking, pet sitting, or some other form of daycare for pets.” Many of us have pets and love them as much as any family member. After working from home with these pets for so long, it is important to make sure they are cared for. Cassandra’s research revealed that “1,300 job listings [in 2022] describe offices where workers can bring their pets.” And yes, BEST Human Capital & Advisory Group is one of those. See our precious ”steakholder” Tyson’s profile on our website.
The four-day work week is another key trend. While not appropriate for every role in the green industry, judicious use of this schedule for office-based roles, leadership, or any role not mission-critical for onsite during typical operating hours can lead to impressive results. A Maru Public Opinion Poll conducted for The Business Journal in February 2022 revealed the following:
- 82% of workers would trade 8-hour days to 4 ten-hour days for the same pay.
- 88% of earners at $100,000+ per year wanted this.
- 76% of those making less than $25,000 per year also wanted this.
- The Midwest was 84% higher than all other regions in the country in their desire for the 4-day work week.
- 74% said they would leave their current jobs for a 4-day work week.
- 97% said they would be more productive.
Cassandra also shared other key compensation drivers of retention that are too often overlooked by businesses, including free lunch (after all, who wouldn’t want a free lunch?), variable pay, performance management, and merit pay.
Employees respond very well to variable pay. This helps them connect the importance of what they do to the company’s results. It provides them greater control over their own earning potential. Through variable pay, employees can see what the company values most and put their best efforts into those activities that are most impactful to the company and their own financial goals. Cassandra shared that, according to World at Work, a global association for human resources management professionals and business leaders focused on attracting, motivating, and retaining employees, “60% of companies are using performance sharing – up 19% from 2 years ago – and individual metric use dropped.” Despite this reported drop in individual metric use, “68% of HR leaders report an increased number of eligible employees to receive a cash bonus in 2021,” says Cassandra.
Performance management is another element. Reviews, whether frequent one-on-one meetings with employees or less frequent semi-annual or annual reviews, often provide data used by leadership when awarding raises, promotions, or other financial rewards. Cassandra shared that recent trends reflect that “16% of organizations are now using a rating-less performance review system.”
When determining merit pay increases annually, Cassandra says that 12% of companies base such increases on something other than individual performance. There are many good things that employees do for the company beyond the key performance indicators for their role. Using criteria other than individual performance measurements helps employees feel more valued by the company and less like they are just numbers on a page.
When most employers think of benefits, they think of medical, dental, and vision insurance. There are many more benefits that can be offered than just these. Some are related, such as Flexible Spending Accounts used to pay for medical expenses or supplemental benefits intended to provide additional support when hospitalized or even to supplement income, such as short or long-term disability insurance. And while the costs for medical, dental, and vision insurance are constantly going up, other benefits beyond these can be offered and aid in retention as well.
Starting with the medical, dental, and vision benefits – if you offer them, it is highly recommended that you gain feedback regularly from your employee population about how they are using their benefits and the value they see in them. Listen to what they are using and what they are not, what they wish would be in the benefits, and what they really don’t want. This can guide you in the early discussions annually with your benefits brokers to adjust the benefit offerings to meet the needs of your employees. You may find some hidden nuggets that will allow you to reduce your costs or at least reduce the rate of increase in costs.
Beyond the medical, Cassandra shares that benefit trends reflect that employees want parental leave, student debt help, tuition assistance, retirement plans, and time off to volunteer. Each is an amazing tool that encourages retention.
Parental Leave, a benefit that is not just for the mother of a newborn or for childbirth, is often used when adopting children to provide time for parents to bond and form a relationship. Whether a same-sex relationship, a traditional family relationship, or a single-parent situation, parental leave is extremely popular to the point where many counties and even states are enacting laws requiring such benefits. Companies that offer this ahead of any legal obligation demonstrate a strong desire to care for their people, which is very attractive to employees.
Despite the recent federal plan to forgive specific amounts of student debt, make no mistake, there will remain a lot of student debt out there. Not only are many employees not eligible, but not all debt for eligible employees will be forgiven, and there are more students in college who will come out with debt over time. Thus, providing student debt help and tuition assistance programs are excellent tools to attract and retain your organization’s early career and new graduate talent. They can be leveraged to improve the knowledge, skills, and abilities of your existing workforce by using these to supplement continuing education for professional certifications or even for the pursuit of graduate degrees for key leadership. The terms are often connected to longevity with the company, thus a strong retention tool.
Retirement plans are offered by so many businesses today that some job seekers consider them an entitlement. There are many different programs, from Simple IRAs to full 401k programs and even pensions, for employers to choose from. Not offering some form of retirement program can make recruitment and retention a real challenge, and small business leaders are concerned about costs. The costs, as well as compliance and reporting burdens, are often not as arduous as many believe, especially when the administration is outsourced. As a retention component, review your vesting schedule with defined contribution programs. Tiered vesting of employer contributions can be a powerful way to retain talent.
While all of us care about the community and environment to one degree or another, Millennials and Gen Z have demonstrated a strong level of altruism. They have lived through struggles not seen by many in their young lives since the Great Depression or WWII. As such, the ability to take time off to give back to worthy causes, volunteer for non-profits, and help clean up their communities and the environment are strong attractors to these employees. Companies that offer paid time off for volunteering can connect the earned time off to longevity with the company. Employers often tout this benefit and the impact their employees have on the community and environment to aid with talent acquisition, talent retention, employee satisfaction, employee engagement, and even as a business development tool. Clients and vendors often form a business relationship in part because of the ethical focus of a company, and this benefit is a straightforward way to demonstrate a company’s ethical foundation.
We are still in the midst of a historic labor market, tighter than any on record. Stemming the tide of resignations and quiet quitting is critical. When businesses focus on employee retention, they gain the ability to grow their business, not just their crops. When resignations happen, they have a chance to transfer knowledge between employees and even generationally, maintaining critical capabilities to achieve strategic plans. While there remains no single silver bullet solution to drive retention, Total Rewards is a key component and important lever for talent retention. Other components discussed in previous articles include Onboarding and Recruitment strategies. Our final article in this series will address Organizational Design’s critical retention role. Differentiate your business by adopting these BEST practices and retain your employees.
About Total Rewards Solutions – A BEST Strategic Partner:
Total Rewards Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, a professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Rewards Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees, and retain top performers. We can partner with you on a project basis, retainer, or as your total outsourced solutions provider for compensation services.
To learn more about how to design, implement, and manage strategic employee pay programs, Contact Total Reward Solutions today at 317.589.8528