How important is a high salary?
Co-authored by Li Zhu from ING
Now that many organizations globally are cutting in hiring, promotions, and bonuses we think it’s a good idea to examine how important your compensation strategy for a job really is.
This post is part of a two-part series about Compensation Management and strategies related to Salaries. The previous part dove into the importance of Compensation Management and here we analyze if we can do better (we can).
Part II: The best Compensation Management Strategy is about more than just Salary
As much as it sounds upsetting that average employees are rarely satisfied with their salary, could we do anything differently? Can deeper analyses shed light upon better Compensation Management Strategies?
To find out, we are taking a look into other predictors of Satisfaction with Compensation such as the Cultural Fit between Employers and their Employees. Our research shows that you can - quite literally - create a balance between managing expectations and delivering value. For convenience sake, we will call this “Cultural Fit in Compensation & Benefits”.
Cultural fit is a huge driver of global satisfaction (Kristof-Brown et al., 2005). Which areas of Compensation Management create the biggest mismatch and how can we work around that strategically?
To begin with, we dissected Compensation and Benefits Management within a Company Culture into eight distinct segments, i.e., a ‘Good Reference for Future Career’, ‘Competitive Basic Salary’, ‘High Future Earnings’, ‘High Commission/incentives’, ‘Overtime Pay/compensation’, ‘Rapid Promotion’, ‘Leadership Opportunities’, and ‘Good Work/Life Balance’.
We have asked hundreds of hiring managers to allocate 100 points to the eight segments representing their companies’ Compensation and Benefits-culture. Similarly, users were asked to do the same to define their ideal situation.
Ultimately we are trying to answer the question: which company strategies are not representing preferences of users?
1. Dissatisfied people have very different expectations from an organization than we think.
When comparing business culture to individual preferences of those talents with a low satisfaction for compensation strategies we saw the biggest discrepancies in:
High work/life balance (-54%),
High commission/incentives (+120%),
Overtime pay/compensation (+102%)
As expected the mismatch of basic salary is slight. As we saw in part I, companies are already putting in the effort to work on a competitive strategy albeit somewhat ineffective.
Overall the dissatisfied group still prefers extra monetary benefits over a more balanced lifestyle. Somehow employers seem to think they can commoditize work/life balance but dissatisfied users do not seem to care as much.
Graph 5: Culture fit between Employers and Talents with Low Satisfaction
2. Once people are satisfied with Compensation they start caring about other things.
Let’s look at the other side; the observed differences between employers and employees with a higher satisfaction for their Compensation are apparently much smaller as shown in Graph 6.
We now see the biggest discrepancies in:
High future earnings (+41%)
Good reference for future (-23%)
High commision/incentives (+54%)
Interestingly, being satisfied with their current compensation level, the high satisfactory group is also more in favor of future monetary rewards (High future earnings, High commission/incentives) compared to non-monetary benefits (Good reference for future).
We start to see a key feature shining through. People showing relatively high satisfaction, are typically more aligned with employers overall.
Graph 6: Culture fit between Employers and Talents with High Satisfaction
Monetary rewarding is the most preferred strategy of compensation chosen by employees, regardless of their current salary satisfaction level.
Work-life balance only matters when people are satisfied with their salary.
While it’s never enough money to make your employees happy, those who have a better business culture fit are more satisfied with their compensation than their peers who fit less into their corporate culture. In other words, a better culture fit leads to a higher satisfaction level, and ultimately, a stronger motivation and a better performance at work.
What is the key takeaway? While European big companies (S&P 500) are focusing more and more on the well-being of their employees such as Better Work/Life Balance, it is way more crucial to incentivize high performers with extra monetary rewards. It’s about salary, but more than just salary.
Some research suggests that people will do anything if the pay is high enough, there’s a threshold that overrules even the worst circumstances, are you willing to go that far?
There’s other research from Gallup showing that 48% of the people in the workforce are being disengaged (and up to 20% being actively disengaged). Make sure you're not hosting a big part of that group by investing in Talent Analytics.
In other words, it’s all super complicated but we hope you learn to make some sense of this mess and find a strategy to compensate for our insatiable appetite for cash. Consider investigating your cultural profile and what works best to see where you can best allocate resources.
Start with drawing a cultural profile or cultural map of your company (we can help you if you want). This helps you to identify the business culture that fits your company the best. You can then match the most suitable talents to grow your business in an efficient and cost-saving way.
Our further advice during a downturn is to benchmark how much to scale back with your competitors and to focus on well-being and health. Keep in mind though, as soon as you come out of the crisis, the race starts all over again and you better make sure you haven’t missed the starting signal.