Pay Practices that Make an Impact

I recently had the pleasure of co-hosting a webinar with HRSoft’s brilliant Executive Director of Solutions & Strategic Consultant, Glizcel Ditto. We had a great conversation about how HR and compensation leaders can truly measure the impact of their compensation programs on employee engagement and retention.

For too long, compensation has been treated like a necessary cost center. Glizcel and I agree: it's time to reposition it as a strategic lever. To accomplish that transition, you need to notice the right signals and make the right adjustments to your program. Keep reading for a recap of key takeaways from our conversation, with insights on how you can evaluate your program and create pay practices that make a meaningful impact for your employees.

Metrics to Evaluate for a Successful Program

The first step in creating impact is knowing what to measure. You can’t fix what you don’t track. Start by getting your team synced up on essential metrics you should be monitoring, including financial metrics, engagement (eNPS), voluntary turnover, and your overall retention rate, especially first-year and high-performer turnover. 

As you evaluate these metrics, what really signals your program might need adjustment comes from digging deeper to find the why. You need to move beyond general turnover numbers to the specifics:

• Evaluate voluntary turnover: You must mine your exit survey data to find out when compensation is the primary driver of a departure.
• Review offer acceptance rates, specifically turn downs This is your leading indicator for market competitiveness. If your offer turndowns mention pay, your strategy is immediately out of sync with the talent market.
• Standardize and track specific compensation survey questions: Find about five high-impact questions on your annual engagement survey that focus on compensation and total rewards. Then, pull those five questions into your pulse surveys as you prep for your open enrollment (OE) and wage review seasons. Comparing year-over-year (YOY) ratings on these specific questions gives you an instant, timely health check on employee sentiment.

Ultimately, these key metrics (whether compensation-forward like comparatio analysis or employee engagement-focused like the "pay-coded" turnover) are your signals for a healthy compensation program.

Creating Impactful Compensation Practices

Measuring your program is one thing, but designing a program that thrives during a changing market is another. The challenge lies in finding a strategy that is steady enough to be fiscally responsible and nimble enough to keep up with changing employee and market expectations.

Remaining Competitive in a Rapidly-Changing Climate

After you’ve surfaced the “why” behind the effects of your compensation program, it’s time to turn your vision toward the future. The problem? You can’t predict the future.

The talent market can be rocked by unexpected elements, both external (like economic changes) and internal changes (like expansion to new areas). Having a strong foundation for compensation and employee engagement is a necessity for riding those changes out while remaining competitive. Rapidly changing economies also bring rapidly changing markets, so your compensation strategy cannot be static. It needs a built-in mechanism to flex with the ever-changing talent pool to capture niche and competitive skillsets when they become critical to the business.

To create programs that thrive through conditions you can’t plan for, you need to create protocols for quick evaluations and checks when something shifts unexpectedly. You might need to dig into your internal data again, adjust how your programs function, or change your budget, and you’ll need to be able to act fast.

At times, a smaller or tighter budget becomes a reality. My advice is to leverage non-monetary elements that are high-value: things like stretch assignments for career growth, flexible work arrangements, equity grants, and dedicated R&D time can be powerful supplements to base pay. Think creatively about what's in the full picture of your Total Rewards strategy, even if you aren’t able to make typical salary adjustments.

Leveraging Variable Pay and Recruiting Tactics

When it comes to recruitment, a strong program balances external competitiveness and internal equity, and you have to communicate both clearly. My take is that a rising tide must lift all boats. Yes, watching newer folks come in at higher compensation can be frustrating and contribute to wage compression, but a good compensation program will respond with regular internal equity reviews and increases for all. Bringing on great people leads to company success, and that success is the most powerful leverage you have to build better programs and raise the bar for everyone.

Evaluation Strategies and Best Practices

51% of our webinar attendees stated they review their compensation strategy and its impact on employee engagement annually. A core mistake companies make is treating pay as the primary driver of engagement or evaluating compensation and employee engagement in a vacuum. At the end of the day, a culture of communication, transparency, and support is what fosters growth and satisfaction for your employees.

When you decide to take a close look at the intersection of your compensation program with employee engagement, I recommend 4 clear steps:

1. Define clear metrics for financial, talent acquisition, and employee-related impacts.
2. Gather a team of stakeholders across HR, Finance, and leadership to ensure alignment.
3. Create a schedule for regular audits and benchmarking against the market.
4. Prioritize communication and transparency in how pay is defined, delivered, and explained to both current and prospective employees.

Ultimately, creating pay practices that make an impact is less about reacting to the market and more about proactive measurement, agile design, and a commitment to transparency. Remember, while pay is critical, it is always supported by a strong foundation of communication and culture. By defining clear metrics, involving stakeholders, scheduling regular audits, and prioritizing transparency, you can successfully reposition your compensation program as a powerful lever for long-term employee engagement and business success.