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Compensation Perspectives

Published August 2007

Strategic Compensation: Adding Value Without Spending Money

Brian Summerfield

A new WorldatWork survey predicts employee pay raises will more or less stay put in 2008, a departure from the nearly 4 percent average increase this year. Additionally, a recent Authoria poll, in which 171 compensation professionals provided feedback virtually and in person, showed the top impediment to achieving business results was the lack of sufficient budget.

These two findings paint a picture of imminent belt-tightening times for the people who direct employee compensation programs. Yet, industry analysts also say that as the number of qualified professionals in the workforce begins to shrink, a war for talent will ensue.

This presents a problem: How do you keep compensation competitive if you can't spend more money on salaries, bonuses and incentives? The answer is to make compensation more strategic by applying it to talent management, said Allan Wood, Authoria senior product manager of compensation and communications solutions.

He said many of his clients are in the midst of a budget crunch and wouldn't be allotting much more money to employee pay in the near future.

"I think there will be a slight uptick potentially, but what I'm hearing from most of our customers is that there won't be a significant change [in pay] this year," Wood said. "I think what we'll see across industries is that things will stay fairly flat. They'll look for other mechanisms to motivate and compensate. Most companies are still looking very closely at the bottom line — that's what's driving most of this."

He added that there were a few exceptions to this, particularly organizations in industries such as engineering and health care.

"The only companies that will shift in any significant fashion will be in those areas where talent is already in short supply," Wood said. "There are specialized pockets where they're feeling the squeeze more than others, and they have to push pay up just to stay on par with the competition."

Still, for the most part, pay will stay relatively static in 2008. As a result, more compensation managers are looking at ways to add value to offerings without actually spending more money. One such method is to promote a concept of "total compensation," which pulls together various elements into a comprehensive package. These features range from income and health benefits to work-life balance and development offerings.

"Compensation folks know that money — whether that's options, bonuses or so forth — isn't going to be enough," Wood said. "They're really trying to make a connection to the overall rewards package. At the moment, they're definitely siloed, but I think as companies start to look at creative ways to do something besides salary increases, then they're going to look at anything that can be positioned as being of value for the employee.

"I had a conversation with one of our financial customers recently, and they'd spent about half an hour trying to tell me how unique their culture is. I've had similar conversations with many of our other compensation customers, and it's made me realize that these companies are pushing themselves very hard as having a unique culture and being a unique place to work. They then try to wrap that around a set of compensation attributes, which aren't just related to pay."