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    Compensation vs Employee Appreciation - Rethinking Compensation Strategy

    August 8, 2023

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    Compensation vs Employee Appreciation - Rethinking Compensation Strategy
    Sunil Vatave
    Written By
    Sunil Vatave

    Traditionally, compensation management focused on the amount of compensation.  However, today, it warrants a different approach. This article talks about what needs to change, and how organizations can make compensation planning more effective. 


    Only 32% of employees feel they are paid fairly.  Some surveys state 82% of employees plan to change jobs in the next 12 months.  So, do employees quit because of pay? Scholars at Harvard University might say no because years of research shows job satisfaction is not tied to increased pay.  Is Harvard wrong?  Not necessarily.  

    Someone can like a job but feel unappreciated, and feeling unappreciated is what causes employees to quit.  66% of employees would quit if they felt unappreciated.  With millennials the number jumps to 80%.  This explains the contradiction in the surveys.  In a sense, pay is an explicit representation of how much the company appreciates the employee.  

    Traditionally, compensation management focused on the amount of compensation.  However, the evolving world of work warrants a different approach. 

    Compensation planning strategies could be more effective if we considered the amount of compensation as a component of appreciation. If handled differently and implemented well, this could increase employee retention and maximize worker productivity.  

    At a time when employee experience as a concept has gained prominence with companies worldwide investing millions in providing their employees with differentiated, personalized, exceptional experiences, reimagining compensation strategy keeping EX in mind could be a game changer.  

    Compensation planning, as things stand now, take into account four key elements:  

    • The amount of compensation  
    • The process of compensation adjustments  
    • Alignment  
    • Reinforcement and a positive feedback loop 

    Today, for the most part, it is set by the market. But the markets are not static. People are hired under different market conditions and have different compensation numbers.  

    For example, a software engineer hired 10 years ago might have been paid $70,000, while one hired today is paid over $125,000. Similarly, a long-term employee who has done a great job for many years may naturally be paid much higher than a new employee hired into the same position.    

    Therefore, fair compensation takes into account both the current market conditions and historical performance of people in the position.  The two most common ways to set this figure are using data from external sources like Mercer, Radford or Salary.com, and internal company data derived from reports showing compa ratio, salary ranges, min-max ranges, and salary histories.   

    Alongside, HR professionals also take into consideration other factors that might affect compensation, especially performance-linked pay. If an employee’s performance – and by extension, their salary – is linked to another employee’s performance, it is important to ensure that the performance goals don’t conflict. Goals are set in a way that they cascade across the organization. Compensation planning tools are used to ensure that the success of one is dependent on the success of all.   

    Then comes the process of revising compensation periodically. A fair process builds integrity and transparency is critical. Managers should have data showing where an employee’s salary stands relative to their peers, relevant market data, and the employee’s own pay history. HR administrators need to be involved in the process of managers communicating the salary revisions with employees, and the HR team members should be able to adjust for pay decisions outside that are not justified by the numbers. Maintaining records for auditing is, of course, essential.  

    Reimagine. Reset.  

    Today, most companies consider the elements we discussed as discrete steps. HR professionals have the tendency to neatly organize compensation in steps, grades and variable plans, and not pay much attention to the compensation until the next compensation planning cycle. But if we are to consider compensation as a measure of appreciation, then this set-and-forget practice needs to end.  

    In its place should be substituted a system of continuous feedback, rewards and recognition.   

    Think of an employee receiving a $100 bonus in his next paycheck.  He logs into his bank account and sees the payroll deposit was a little higher. The emotional impact is minimal.   

    Now think about a company where upon achieving the bonus the employee is recognized by his peers for his work.  Perhaps the manager makes a note on his performance review.  Now what was a small bonus has bigger significance.  Compensation is now tied to appreciation.  A relatively small financial incentive turns into a powerful motivator for the employee involved and those who see how he was treated by the company.  

    Viewing compensation strategy through the EX-lens and emphasizing employee recognition and appreciation can change the dynamics between an employee and the employer when it comes to compensation.  

    Define what the company appreciates and does not, and then build a data based compensation structure that is transparent and predictable for the workforce.  Make sure your compensation levels and variable awards are delivered with appropriate fanfare to benefit both the rewarded employee and show their co-workers the company appreciates them.  If you take this holistic approach, your company will realize outsize gains for its investment in compensation.  

    A holistic HR technology platform is essential to bring these new ideas to life. A unified HCM platform that helps bring together an organization's EX initiatives and compensation planning can transform the relationship between employees and employers. To learn more about how next-gen HCM platforms can enable this for your organization, schedule a demo with Darwinbox today! 

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