Employee Compensation: Strategic Investment Or Necessary Expense?

Paying employees is an investment for a business. While employee salaries are a business's largest expense, there are many benefits to investing in staff. These include improved productivity, better quality output, improved retention, reduced turnover costs, and a better company culture.

However, there are many costs to employing someone beyond their salary. These include payroll tax, insurance, recruitment, training, and office costs. In fact, the total cost of an employee is estimated to be between 1.25 and 1.4 times their base salary.

Improve retention and reduce turnover

Paying employees well is a tactical investment that can markedly benefit your business, your people, and your wider community. It can improve retention and reduce turnover costs. Here are some ways to improve retention and reduce turnover:

Competitive salaries and total compensation

Pay and benefits are key reasons people take jobs and show up for work every day. It's also a top reason why professionals change jobs. Companies should start by offering an appropriate starting salary that will attract qualified and talented candidates. They should also offer regular raises and monitor what other companies pay for similar roles, especially when it comes to hard-to-fill jobs.

Work-life balance

Flexible scheduling and remote work are two ways employers are trying to help workers achieve better work-life balance, which can increase retention. The number of workers who said they left a job because of the commute has increased by 400% over the last decade, according to the Work Institute. Giving employees time off and respecting that time off is also crucial.

Recognition and rewards

Employees who feel appropriately recognized and rewarded by workplaces are much easier to retain long-term, but studies also show those employees will work harder and be more productive. A report by the Brandon Hall Group found companies that prioritize recognizing their employees multiple times per month are 41% more likely to see increased employee retention and 34% more likely to see increased employee engagement.

Career development

Employees should be given opportunities to grow as employees and advance their careers. LinkedIn reports that employees stay 41% longer at companies focused on hiring internally compared to those that don't make it a priority.

Company culture

Company culture is a key factor in retaining talent by successfully meeting an employee's expectations and needs. A company's culture is created through experiences that employees have with peers, managers, and executives. Maintaining a positive employee experience is a highly effective retention strategy.

Foster a better culture

Paying employees well is not just a human necessity but also a tactical investment that benefits your business, your people, and your wider community. It is a crucial component of engagement, reflecting how valued employees feel by their employers. When employees feel valued, they are more likely to be engaged and productive, which leads to improved business performance and profit.

Competitive salaries

By offering competitive salaries, you can retain talent for longer, reducing turnover costs. Research shows that retaining talent has become increasingly challenging, with "The Great Resignation" being a pandemic-triggered exodus of Gen Z and Millennial workers seeking increased flexibility, purpose, and higher salaries. Losing an employee is costly, with the average cost of turnover per employee being around $40,000. By setting appealing salaries, you can keep employees for longer, resulting in more cohesive teams and boosted morale.

Ethical and reciprocal compensation

Paying employees well is the fair thing to do. It helps staff meet their needs and aspirations, covering basic needs and supporting their well-being. Additionally, wage growth has lagged in the United States, with real wages having similar purchasing power to 40 years ago. By providing wages that align with the financial costs of modern living, you enable your employees and their communities to thrive.

Equal pay for equal work

Ensure that employees are compensated equally for equal work, regardless of their geographical location. For example, a back-end developer in the rural Midwest should earn the same as their counterpart in a high-cost area like New York City, as the value they provide to the business is the same. This approach prevents employees from taking a pay cut if they move and enables all employees to maintain a decent standard of living.

Transparent salaries

Be transparent about salaries by providing specific figures in job descriptions instead of vague terms like "competitive salary." Salary transparency helps close the pay gap and ensures that applicants don't underestimate their worth during salary negotiations. It also increases employee motivation and improves collaboration, as employees can compare their earnings with their colleagues.

Regular salary audits

Conduct regular pay equity audits to identify and rectify any unintended pay discrepancies due to bias. This proactive approach ensures that employees are compensated fairly and unbiasedly and demonstrates your commitment to treating pay equity with the attention it deserves.

By implementing these strategies, you can foster a better culture within your organization, leading to improved employee engagement, productivity, and overall business success.

Improve productivity

Paying employees well is a tactical investment that can improve productivity. Here are some ways in which paying employees well can improve productivity:

Improved Retention and Reduced Turnover

Higher salaries can lead to improved retention of employees and reduced turnover rates. Employees are more likely to stay with the company if they feel they are being paid fairly and have more to lose by leaving. This results in more cohesive teams, boosted morale, and the retention of staff with company-specific knowledge. Additionally, reducing turnover saves the company time and money that would otherwise be spent on hiring and training new employees.

Improved Motivation and Satisfaction

When employees feel they are being compensated fairly, they are more likely to be motivated and satisfied with their work. This can lead to increased productivity as employees put in more effort and are more committed to their roles and responsibilities. Salary increases can also foster a sense of appreciation and loyalty towards the company, further boosting productivity.

Attracting Top Talent

Offering competitive salaries and benefits packages can help attract top talent to the company. This, in turn, can lead to improved productivity as the company benefits from having a highly skilled and capable workforce.

Improved Quality of Work

Happy and satisfied employees are more likely to produce higher-quality work. This can improve the company's reputation and lead to increased success and profitability.

Reduced Absenteeism and Conflict

Fair compensation can lead to reduced absenteeism and conflict among employees. When employees feel they are being paid fairly, they are more likely to show up to work and be less likely to engage in conflicts or disputes. This can improve overall productivity by ensuring a more stable and harmonious work environment.

Improve your bottom line

Paying employees well is a tactical investment that can improve your bottom line. Here are some ways in which paying employees well can improve your business's performance and profit:

• Improved retention and reduced turnover costs: Paying employees well can help retain talent, reducing employee turnover. High employee turnover is costly, as it involves spending time and money on hiring replacements, training them, and dealing with less productive workers. Higher salaries can be a cost-saving measure, especially in competitive job markets.
• Improved productivity: Paying employees well and fostering an environment of creativity, collaboration, and empowerment can lead to improved productivity. Happier employees are more engaged and productive, resulting in higher-quality work and an improved reputation for the company.
• Attracting new talent: Investing in employees by helping them develop new skills can attract top-tier talent. Offering competitive salaries, a solid benefits package, and a smooth onboarding experience can enhance your company's reputation and make it more desirable for potential employees.
• Improved company culture: Fair compensation makes employees feel valued and reduces money-related anxiety, leading to improved morale and a more positive and productive work environment.
• Community benefits: Paying employees well enables them and their communities to thrive. It also helps align wages with the financial costs of living in the 21st century.

Attract new talent

Paying employees well and offering them benefits is an investment in your business. It is a way to attract new talent and retain existing employees. Here are some ways to attract new talent by investing in your employees:

Offer Competitive Compensation

While offering a large salary is not the only thing that matters to employees, it is still a top consideration when job seekers look for a new role. If you want to attract skilled workers, you must be prepared to pay them what they are worth. Start by reviewing the industry average for salaries in similar roles. You can also use salary benchmarks based on location, role, and experience. In addition to base salary, consider other forms of compensation such as employee retirement plans, bonuses, paid time off, and stock options. A diverse combination of compensation can make a job offer more attractive.

Build a Comprehensive Employee Benefits Package

In addition to mandatory benefits, such as family and medical leave, health insurance, unemployment insurance, and workers' compensation, creating a comprehensive benefits package is essential to attracting the best employees. The most popular employee benefits fall into five categories: health and wellness, financial well-being, work-life balance, professional development, and diversity, equity, and inclusion. For example, you can offer flexible vacation and scheduling, remote work options, and employee development opportunities.

Foster a Positive Work Environment and Culture

Creating a positive and enjoyable work environment can be very attractive to potential employees. This can include simple initiatives such as holding meetings outdoors in nice weather, allowing employees to listen to music while they work, or holding social lunch hours once a month to encourage team bonding.

Share Your Vision and Emphasize Opportunity for Growth

Candidates are looking for more than just a paycheck. They want to feel like they are part of something bigger and have opportunities for career growth and development. Share your company's vision and mission during the recruitment process and emphasize how the candidate will be an integral part of making that vision a reality. Communicate that you promote from within and offer clear paths for career development and growth.

Write Detailed and Compelling Job Descriptions

A well-written job description can make a big difference in finding qualified candidates and attracting them to apply. In addition to listing the responsibilities and requirements of the role, a job description should give the candidate a sense of your company culture. Use a tone and language that reflect your company's culture and values. Be specific and detailed about the role and the type of candidate you are looking for.

Frequently asked questions