02: A Strategic Framework for Compensation

The Costs of Attracting Generation Z

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During times of great chaos, most organizations do what they must to make it through the storm; however, once the chaos of the immediate disruption is over, organizations should not forget the value of strategy.

The role of HR in the development and implementation of an organization’s strategy is to continually assess if the HR strategy aligns with the overall business strategy. This blog post will discuss the importance of compensation strategies on the recruitment and retention of Generation Z employees.

Obviously, the COVID-19 pandemic has made all employers and employees anxious about their personal and professional lives, but even before the spread of COVID-19, Generation Z employees stated that their biggest barrier to professional achievement was anxiety!

According to research from the Workforce Institute, posted in an HRD article, 34% of the Generation Z survey participants felt anxiety was their top barrier to workplace performance, with women reporting a higher level than men—39% to 29%, respectively. When the responses were examined by country, the statistic rose to 44% in Canada—higher than the U.S., which reported 40%.

These are revealing statistics that show a significant number of Generation Z workers have anxiety, and it is holding them back in their performance in the workplace. Additionally, the article references the American Psychological Association 2018 report, titled “Stress in America: Generation Z,” which found that “77% of Gen Z adults in the U.S. were stressed about work versus 64% of adults overall.”

So, what does workplace anxiety have to do with strategic compensation? If you refresh yourself on Maslow’s hierarchy of needs pyramid, you will recall that the first and second level are physiological needs and safety needs, respectively. Organizations know that one of the best ways to reduce anxiety in the workplace is to ensure employees’ basic needs are being met.

All employees, including Generation Z employees, need the security of a full-time job and benefits to flourish in the workplace. Organizations should consider the needs of Generation Z when designing their strategic compensation programs.

Discussion Questions:

1. Click to see a research article from the Workforce Institute. Read through the article, and prepare a list of what Generation Z would like to see in the workplace from the perspective of compensation and benefits.

2. Based on the list from question 1, create a summary presentation to convince your CFO that these principles should be integrated into the organization’s strategic compensation plan. You can add supporting research to your work as well.

Wage Forecast Going UP!

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All HR professionals have to strategically plan the potential and actual costs of wages every year. There are many factors that affect the business cycle of wages, such as the economy, the Consumer Price Index (CPI), and the unemployment rate:

If one considers these factors, what does the upcoming 2020 forecast look like for employee wages? Here are some perspectives based on these economic indicators.

The North American economy has been booming for over 10 years. There is always global uncertainly with circumstances that are difficult to predict, such as trade wars, changing politics, and possible pandemics, but most economists say the business fundamentals in Canada are sound. Inflation, although stable, has been trending upward in recent years, and one of the most important economic factors to consider—unemployment rate—has been down in North America. The US unemployment rate was at 3.5% in 2019, which was the lowest it had been in 50 years. In Canada, the unemployment rate was the lowest it had been in 43 years in 2019 at 5.8%.

The low unemployment numbers will be the biggest contributor to wage increases in 2020. A recent wage survey predicts the average wage increase for Canadian employees will be approximately 2.7%, which is just above the current rate of inflation, which means employees’ actual wages will also increase.

All of these factors are going to put great pressure on HR departments. As wage demands increase, it will be more difficult to recruit and retain employees as job openings will outpace the supply of employees.

2020 will be an interesting year for HR departments, which will have to be at their sharpest to maintain their compensation budgets, and still be able to hire employees without too much upward wage pressure.

Discussion Questions:

Review the interactive wage survey from Normadin-Beaudry, and find your provincial data. Identify your province’s predicted wage increase for 2020 and compare it to the average wage increase in Canada. Once you have identified the wage increase, research and identify your province’s CPI and unemployment rates. Using all the data collected, create a 5-minute presentation for your VP of HR on developing a new compensation strategy for your organization.

The HR Pressure Cooker is Heating Up

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Wages have always been at the forefront of any HR Department’s concerns, but it seems we are now approaching boiling point and that something may blow. Recruitment company Hays notes in its 2018 Salary Guide “a building pressure and awareness around compensation that [they] have not seen in previous years.” (Hays 2018 Salary Guide, p. 20.)

What does this mean for HR Departments? It is clear that they are feeling the pressure. Eighty-five percent say they want and need to improve their compensation plans in order to hire and retain top employees, but according to the Hays study, only 24% of HR Departments are allowed to offer more than a 3% compensation improvement.

Here is where the pressure is building for HR Departments — in recruitment. Compensation challenges and an inability to hire locally sourced talent is making it very difficult for HR departments.

The pressure is on, then, for HR to develop sophisticated, integrated strategies that address compensation levels, organization culture, and recruitment challenges. Perhaps HR professionals will increasingly need to show evidence-based research to convince senior leaders that they may have to increase their compensation budgets in the very near future.

 

Discussion Questions:

Research companies that lead the market with their compensation strategies. Identify why they have pursued these strategies.

Develop a 3-minute presentation to convince a Chief Financial Officer that an increase in the compensation budget is needed.

 

Pay for Production

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Are you paying for hours, or for productivity? The difference could be huge.

Woman balancing life and work
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All organizations need to develop an effective compensation strategy that is aligned with their business strategy; that is HR and Business 101.

Many compensation consultants discuss the concepts of base pay, performance pay and indirect pay, and most of those concepts are built on the foundation of an annual salary or hourly wage. Our society has been ingrained into the concept that a full-time employee works eight hours a day and 40 hours a week for approximately 2000 hours a year. It just can’t be any other way, most HR professionals would say.

  • What if our society’s concept of the paid hour of work for eight hours a day is a flawed concept?
  • Is eight hours the most productive number of hours per day to work?
  • Are there any alternatives?

Well, some researchers and some businesses are exploring alternatives to the eight-hour day and seeing very productive results. Tower Paddle Board, a manufacturer of stand up paddle boards (SUP), moved to a five-hour work day and a five-percent profit sharing model.

  • What was the result?
  • Was it higher costs?
  • Was there lower productivity and greater customer complaints?

I bet you can guess the answer to those questions was a big and bold: NO!

The opposite was true: workers’ wages went from $20.00 per hour to $38.40 per hour for 25 hours a week, and annual revenues were up 40 percent. Also, they have been named one of America’s fasting growing companies.

Click here to read about Tower Paddle Boards.

Discussion Questions

  1. Read the article about Tower Paddle Boards. Review the five steps Tower Paddle Boards used to implement a 25-hour work week. Pick a company and see if you could use those five steps to make a 25-hour work week work for that organization.
  2. Conduct some research online to learn about how other countries and companies schedule their work week. Come up with your own ideas for alternatives to the 40-hour work week.

Strategies for Social Good?

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Group of people seen from above gathered together in the shape of a "thumbs up" symbol standing on a white background
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Most of us are motivated to contribute something positive to the greater good of the world around us.

This motivation does not stop when we enter into our respective workplaces. When we spend forty or more hours a week working as part of an organization, we want to feel that our combined efforts are part of something bigger. We want to belong to an organization that gives back, not just to each one of us as employees, but to the broader social community. In recognition of this motivation, many Canadian companies are building their organizational frameworks on managerial strategies that allow for a reach beyond the workplace, into the broader community, to contribute to a social good.

Three examples of Canadian companies that have built their strategic frameworks on the principles of ‘good deeds’ are outlined in a recent article published by Canadian Business.

Click here to read about the initiatives implemented by Oliberté, Nude Bee Honey and Canada Goose.

From a compensation strategy perspective, each of these Canadian companies seems to include an element of reinvesting their rewards back into their communities, the environment, and their workers. As noted in the article, each of these profitable organizations must have the buy-in of their staff if they want to be successful in bringing about environmental or social change.

As a result, these strategies come at a price for consumers at the point of purchase. In the same way that employees may be motivated by doing good, these companies are successful through the targeting of socially conscious consumers who may be willing and able to pay in order to be part of a broader good.

Discussion Questions:

  1. How does a prospective employer’s commitment to social responsibility influence your career choices?
  2. What types of managerial strategies are evident in Oliberté, Nude Bee Honey and Canada Goose?
  3. How is employee citizenship behaviour rewarded in each of these companies?
  4. Would you pay more for a product if you knew that the profits would be used for social good?