Is your compensation strategy fit for the new reality of work? If not, let’s talk about how to get energized, focused, and started on this new regimen. As COVID-19 pushes remote work into overdrive, Remotopia has encouraged professionals to think about everywhere in the world they could be. This newfound freedom brings opportunities as well as fresh problems for business leaders. One such problem is whether a business will pay a business analyst living in Kansas City, MO the same amount it pays an equally capable business analyst who lives in Jersey City, NJ? To answer this question, the Human Resources Organization will need to evaluate how it determines compensation for its workforce. Human Resources will then need to update its practices from creating and reviewing roles to refining a compensation formula and normalizing salary across geographies.
The very first – and most important – step in this process is to revisit job descriptions. Traditional job descriptions are full of generic statements about a day in the life of an employee. The list of platitudes often falls short of accurately describing the business need for the role, the expected contribution to the business, and the many points of interaction among team members. As all jobs evolve, so must job descriptions. Human Resources should examine each role in the company and create brand new, action-based personas. With a set of personas that highlight expectations for the candidate around technical, behavioral, and leadership skills, teams can take a big step toward building more cohesive and complete teams. Once the Human Resources Organization fully understands each role’s contribution to the business as a whole, the team can move on to honing its compensation formula. The second step in helping companies prepare for this new world is to select a method of defining a compensation formula from the following list of approaches.
The Cost-Based Approach
Human Resources can use historical comparison data to set a baseline range for a given role. In this method, the Human Resources Organization analyzes bulk, historical data for a given role across industries and markets. Typically, these salary bands are based on the cost of talent. How much money will it take to attract new talent for a role? How much will it cost to onboard new talent for a role? How much money will it take to keep new talent for a role? To date, Human Resource Organizations place premiums on those numbers in order to attract top talent in hyper-competitive markets. To see this cost-based approach in action, review the salary estimates returned in a search on LinkedIn Jobs for a given role in professional services, like business analyst, in a few different cities. While the competitor, cost-based method is widely used, it can create tension between candidates and recruiters as well as discord among the ranks. The cost-based method is outdated, rigid, and focused on competitors rather than the company’s business. This method also ignores the contribution to the business that specific roles make.
The Value-Based Approach
Human Resources can take a value-based approach to determining the salary each job persona should receive. This internally focused exercise forces a business to examine how each role contributes to revenue. Other financial metrics can also be used if there isn’t a clear line to revenue. By identifying an expected contribution to the business as a whole, Human Resource Organizations can begin to assign value to unsung work. Employees can begin to be compensated for the intangibles of their work. Team leaders can be clearer about role expectations and accountability with new talent. This approach stands to deliver enhanced transparency and fairness with regard to employee compensation, which leads to improved employee relations and increased collaboration among team members. Despite all the upside of value-based compensation – including stimulating more employee interest in the overall success of the business – this approach is rarely used. It requires investment to define, implement, and maintain, but has tremendous value when used properly.
The Co-op Model
A company can implement a cooperative business model. Historically, cooperative enterprises address market failures. Co-ops are values-driven organizations that share ownership of the business among employees and local residents. These organizations focus on generating and keeping money within a local community. There are 30,000 cooperatives in the U.S. Take a look at your local, non-chain grocer for examples of smaller co-op models. REI, Ace Hardware, and Ocean Spray are great examples of big businesses using co-op models. This model is gaining popularity among small startups as a way to cultivate employee buy-in, engagement, and morale. With a focus on sustainability and community impact instead of pure profit, co-op enterprises can realize higher wages for employees. In this model, the business can base salary on a custom formula to determine a true livable wage. For example, a house-cleaning co-op in Oakland, CA raised its owners’ median income from $24,000 to $40,000 per year.
The Proprietary Approach
Human Resource Organizations can determine salary in Remotopia by reimagining the entire compensation process – its traditions, assumptions, and challenges. This is playing out now with Gravity Payments based in Seattle, WA. The company’s CEO announced the company would implement a minimum wage of $70,000 for all employees by 2024. And to pay for this raise, the CEO cut his $1M salary. While everyone waits for the verdict on this experiment, early results show this approach is great for everyone – debt-laden millennials, industry veterans who have prioritized loyalty over pay, and new-to-the-workforce team members. Figuring out what makes the most sense for an organization is freeing. With the Human Resource Organization at the helm, employees should be put at the center of this exercise. Human Resources can get an understanding of who their team members are, what is important to them, and how to encourage great work from them long into the future.
Once organizations decide on an approach, they can move onto the final step in the process to determine compensation. The Human Resources Organization should remove geographic considerations from the compensation formula in order to help ensure equal pay for equal work. Remote work frees employees from having to live in or near expensive talent hubs like San Francisco, New York City, and Austin. If skilled talent doesn’t have to live in these big, expensive cities, it won’t. And if talent opts out of these expensive areas, companies can establish baseline salaries that exclude expensive geographic premiums. Those salaries can more accurately reflect the ask from each employee and the ability of each employee to meet that ask. Employees are the lifeblood of any business. Determining how to best attract, develop, and retain talent is critical to every business. Compensation is an integral part of that equation. Remote work used to be the future of work, but COVID-19 has made it the here and now. Human Resources can’t wait on reconfiguring how it values and pays for work. It needs to update its compensation formula so that it can succeed at attracting top talent to lead its business.
To find out where new hotbeds of innovation are taking root and which geographic locales could become new talent hubs, look for the 21 Places of the Future report due out in March!