How Personalized Compensation Will Affect Companies in 2022

By Barkat Ali, Global Head of Product, Compensation at Unit4

In 2021, personalization has already become a “baseline expectation” for businesses’ customers, and now, human capital is also catching up. While in 2019, 72% of companies have made little to no effort to personalize the benefits they offer their employees, the ongoing Great Resignation⁠—a term for the massive withdrawal of people from their current jobs⁠—has sparked an interesting debate on how to attract and retain talent. Today, many thought leaders have concluded that it’s personalized compensation that turns the tables.

One size fits all is a thing of the past. Let’s take a closer look at the new approach towards personal rewards and how companies can spruce up their compensation management in 2022.

The size that fits them all: custom size

Until recently, a single salary was the key to hiring and retaining the talent they wanted for many managers. Are you looking for a fulfilling job? Let’s raise your salary. Are you spending too many hours at work? We could adjust your monthly payroll. Such simple answers to complex issues—namely employee satisfaction—no longer make it for modern workers.

The internet age allows us to work from anywhere on flexible schedules. These two factors have created new employee satisfaction incentives that go way beyond the monthly paycheck. That’s why mid-career employees in the tech and healthcare industries are, one by one, handing in their resignations to look for jobs that make them feel more motivated, engaged, and most importantly, valued.

But how can companies show their employees that they don’t perceive them as mere cogs in the wheel of their business? One of the first lessons is to turn the “stiff” monthly paycheck into a flexible compensation plan customized to the employee and their personal preferences. Each worker has different skills and shines in the company because of different values and performance levels. For example, while one employee may perform internal tasks quickly and seamlessly, another employee in client services may continuously generate high customer satisfaction. And while the former employee prefers good health insurance, the latter is enormously motivated by an additional bonus for every customer that leaves positive feedback. “To each his own” is the contemporary motto for paying salary.

How to achieve personalization and still uphold pay equity

To personalize compensation, a company should be aware of what compensation adapted to the market, company, and individual performance actually means. 

First, it requires transparency in the company. Many managers are still unclear about why employees in the same role might earn different amounts or what tools they can use to motivate employees individually. However, suppose managers start tying performance to bonuses and have open communication about this with their employees. This opens a path towards an employee-manager relationship that is defined by communication, flexibility, and trust.

The goal of systematic compensation is not only to reward employees and boost their further development, but of course, to enable benefits that are aligned with official market data, the internal budget, and a long-term growth perspective on the company. For example, payments company Stripe Inc. has begun offering employees who leave San Francisco, New York, or Seattle a one-time $20,000 bonus for the move, but they had to take a pay cut of up to 10% in return. Such decisions sound simple but are driven by thorough analysis that avoids risking wrong calculations or unhappy employees.

To do that, a company needs data—and lots of it. Now, instead of putting it in old-fashioned spreadsheets and letting it rot there, managers should be involved in the process of incorporating data, linking it, and creating viable and defensible compensation plans empowered by smart software.

To begin this process, managers need to understand where the talent market in their industry is headed and how their company adds up to it. They should start by analyzing the salary range of other organizations with a similar size and structure as a benchmark, assessing market and industry salary levels in different regions, and collecting data on revenue and profitability (past and forecast). Then, they can add employee and team data, such as salary slip, including non-cash benefits, past progression of salary and bonuses, individual performance (e.g., quantity/quality of results), team performance (e.g., measured with an NPS score, or business revenue growth). 

When collecting publicly available data, managers need to be conscious about how they benchmark. Companies have previously relied on national data, but with the increasing number of remote jobs and the rising cost differences between cities, the more precise a company’s market analysis is, the better. One might, for example, also factor in the company’s maturity level or the availability of competitive skills and talent for the same job post when hiring a new employee.

Using analytics fuelled by a dynamic compensation software tool, managers can identify, for example, how much compensation is affordable if performance increases (revenue analysis), or who the top, middle, and bottom performers are. The software enables the review of bonuses on each performance level as well as a flight risk analysis by comparing the industry average of compensation, employee performance, and company-specific retention hurdles.

Personalized compensation is the first step, equitable compensation the second. Pay equity is especially concerning different genders, nationalities, and ethnicities. A deviation can have large adverse spillover effects on reputation and company relationships. With the help of software, managers can use visual reports of pay structures across teams to detect inconsistencies or discrepancies between staff. 

Let’s say a business has unique guidelines for average performers already high in the pay range. They should get less than the ones who perform the same who are much lower in the pay range to drive team equity. Likewise, an organization may reward the most competitive roles with higher standards for high performers. Tailoring the guidelines and making them transparent allows for personalization and equity within an organization’s strategy.

Use your compensation strategy to attract talent in 2022

Hiring new personnel, companies need people committed to innovating and going above and beyond. To attract younger generations and skilled talent willing to go the extra mile, businesses need to recognize and live the complexity of compensation. 

In a spreadsheet, it’s virtually impossible to display diverse guidelines and consider numerous factors like performance, role, position in a pay range, long-term potential, or team performance. It’s also difficult to draw analysis from historical data on an employee’s past salary development and get predictive models on how varying bonuses affect performance.

As a solution, companies can use compensation management software such as Unit4 Compensation Planning, that integrates data from different sources and allows for deep personalization for both the company and the employees. Additionally, the software’s ability to extract graphics and visual reports can be a unique way to attract talent: Imagine how a dynamic visualization of a likely future salary is a compelling tool for attracting potential employees that are used to a verbal note on an expected salary before taxes.

Even if modern compensation means investment and forces employers to rethink, this truly pays off. Because if the last few years have shown us one thing, those who adapt to new realities, invest in the future, and show agility, ultimately succeed.