Right now, businesses are operating within the longest sustained economic expansion in history.
On the whole, that has been very good for the bottom lines of most companies. At the same time, however, all of the prosperity has produced a labor market that features the lowest unemployment rate anyone's seen in 50 years. That top-line figure represents a hiring environment that's proving to be a real obstacle for sustained business success.
The unemployment rate is not the only issue, though. A rapid realignment of the overall economy away from manufacturing and towards information-based industries is producing some difficult and worrisome skills gaps within the existing labor pool. That, alongside the shifting priorities of workers, now makes finding ways to reduce turnover and keep top talent a top priority for every business.
How to tailor compensation to increase employee retention
Although many of today's companies are now aware of things like the effect of a high-quality onboarding experience on employee retention, as well as the importance of corporate values and culture, many ignore what could be the most critical part of keeping top performers in the fold: compensation.
It plays a huge role in an employee's decision to stay or leave, and salary alone is just a small part of the equation. To help businesses craft compensation packages that encourage top talent to remain, here are five ways to tailor compensation for the best employee retention outcomes.
1. Offer comprehensive employee benefits
The first important feature that should form the bedrock of any retention-focused compensation plan is a comprehensive employee benefits package. Getting this part right plays an outsize role in retention outcomes, with surveys finding that 78% of employees are more likely to stay with a company due to its benefits program. In business, that's as close to a sure thing as you're ever likely to encounter.
To begin with, create a package that offers all of the generally-expected benefits, including:
- Healthcare Coverage – This is the most common and most sought-after benefit for US employees. The rule of thumb to follow is to offer the best insurance package the company can afford to provide.
- Paid Time Off (PTO) – Begin with a minimum of two weeks' paid time off for all new employees. For especially hard-to-fill positions, start new hires off with three weeks.
- Dental Coverage – Like healthcare coverage, dental coverage is another sought-after benefit, as it relieves the employee of a major financial burden when care is needed for themselves or their covered family members.
- Retirement Packages – Although the days of employer-sponsored pension plans are long gone, employees still want their employers to provide them with options to save for retirement. A great way to do this is to offer a 401(k) plan with a high employer contribution ratio. According to the latest report on such plans from Vanguard, a full one-third of employer-offered 401(k) plans now feature both matching and nonmatching employer contributions – so be as generous as possible to encourage top talent to stay.
It's important to recognize that every workforce has different needs, however. That means it's advisable to conduct surveys of existing employees to determine which benefits matter most to them. That will help in the process of crafting the best package from a retention standpoint.
|Related: A trending benefit many employers are providing as an alternative to the standard two weeks' vacation time is unlimited PTO. That's right – unlimited. Read our full guide to see how it can benefit your company and how it might be more lucrative for your bottom line in the long run.|
2. Provide training and education subsidies
Today's workers, particularly those drawn from younger demographics, now value professional development as a key factor in their employment decisions. The statistics are staggering. According to polling firm Gallup, a full 87% of millennials rate professional development opportunities as important to them. Older workers aren't far behind, either, with 69% of that demographic saying the same thing.
From a retention standpoint, that makes offering training and education subsidies a valuable tool in the drive to keep workers happy. For the average company, it should be possible to create a robust training initiative consisting of online coursework or on-the-job education, which may be managed by existing human resources staff. To augment this, it's also a good idea to offer tuition reimbursement to employees that wish to pursue educational opportunities outside of work.
Businesses can even use such a program to further other aims, such as increasing gender and racial diversity in their ranks by upskilling existing employees to work in new fields. Many technology firms are doing this now as a way to increase female participation in STEM-related fields that are now overwhelmingly male-dominated.
3. Don’t overlook bonuses and awards
Another excellent form of compensation that serves employee retention goals is one that few companies pay much attention to – employee recognition. It's a critical oversight, especially when you consider that surveys have revealed that as many as 94% of employees that are recognized for their work by their employers report high satisfaction with their jobs.
To take advantage of that, it's an excellent idea to craft compensation packages that feature things like employee bonuses and other performance-related benefits. That serves the dual purpose of providing a means of direct service recognition as well as incentivizing high productivity.
It's important to realize, though, that not all employee recognition needs to come in the form of a monetary benefit. Sometimes, a simple weekly shout-out or an annual employee awards dinner can do just as well. The best approach will vary by industry, but one thing is certain: the more you recognize your employees' valuable contributions, the more loyal they will be.
4. Pledge employees a vested ownership plan
Although it should be obvious, one of the most effective things a business can do within a compensation package to improve retention is to create an employee stock purchase or vested ownership plan. Doing so gives every employee a direct stake in the performance of the business, which will encourage them to stay and work hard to increase the company's value.
For maximum retention effects, it's important to engineer any such plan with direct links to time-of-service and other relevant metrics. That serves as a guarantee that employees will remain with the company to achieve maximum financial benefits since they'd pay a direct penalty for departing before they're fully vested in the plan. It also serves as a key defense against employee departures, especially at the executive level. With some surveys indicating that 70% of executive-level employees are on the lookout for new opportunities, the importance of this can't be overstated.
5. Lay out work-life balance perks
Anyone who has studied the topic of employee retention can tell you that it is inextricably linked to employee engagement. The reason is simple. Engaged employees tend to be happy employees, and happy employees don't leave. That relationship is significant because it means that businesses can use engagement strategies to increase retention.
One of the ways to do that within a compensation package is to focus on adding perks related to enhancing an employee's work/life balance. Experts agree that promoting work/life balance leads to better engagement results, and therefore works towards retention goals. Consider adding the following perks to employee compensation to do it:
- Flexible Working Arrangements – Giving employees more control over their work schedules and offering them the ability to telecommute goes a long way toward promoting a healthy work/life balance.
- Paid Caregiver Leave – One of the realities of today's ageing population is that younger workers will inevitably have to deal with caring for an elderly loved one at some point in their career. Offering paid leave for caregivers takes some of the burdens off of them, giving the employee the time, resources, and support needed to focus on a family member who requires care.
- Volunteer Time Off (VTO) – Today's employees want to express their personal values by supporting the causes they care about. Offering them paid time off to devote to such causes demonstrates an understanding of those values, and shows the employee that the things they care about matter to their employer, too.
Related: Are you ready to implement a VTO program for your employees, but not sure how to get started? Streamline your policy today with our easy-to-follow VTO form!
Compensated, engaged, retained
It's no stretch to say that employee retention is now vital to overall business success. In fact, a high retention rate provides bonuses to productivity, decreases recruiting costs, and ensures that vital knowledge and skills don't leave the organization. Although each company will have different retention goals and needs based on its specific situation, the five compensation areas detailed here are almost always applicable in all cases when looking to improve retention. On top of that, they tend to be far more cost-effective options than increasing salaries across the board.
For those reasons, any business looking for ways to improve their employee retention rate should consider making these changes to their compensation packages right away. With unemployment at historic lows and the hiring environment very much in favor of job-seekers – they're a small price to pay to retain the top talent needed to succeed.
Are your employees as engaged as you think they are? Why not use employee engagement software to help you develop engagement procedures to make sure their happiness is top-of-mind? Better yet, download our free one-sheet of employee satisfaction questions to ensure you're not only checking in on your employees, but that you're asking them the right kind of questions!