Employee compensation and merit pay expectation

Finding the right talent is a lengthy and resource-intensive process. You do not want to lose high-performance employees to the competition. As compensation continues to be a primary motive to stay at the job, you must ensure that there are no missed opportunities to offer raises and bonuses to employees.

According to the new research by the Society for Human Resource Management (SHRM) over the past several years, the employees’ expectation of higher compensation and richer benefits has risen.  

An online survey by SHRM titled Respect at Work Boosts Job Satisfaction found that 88% of employees report total satisfaction from their job. The higher job satisfaction resulted in an increased retention rate. The study further concluded that the top three drivers of job satisfaction were:

1. Respectful treatment at the workplace
2. Compensation/pay
3. Benefits.

For firms, compensation remains one of the important factors to retain talent at all levels within an organization.

According to Evren Esen, director of SHRM’s survey programs, a majority of workers have suffered from stagnant wage growth in the last decade. As economies recovered from tepid growth over the years, employees are more focused on compensation, especially the Millennial and Gen X generations. As young workers have college loans to pay off and try to save to buy homes and start families, they are particular about the compensation any employer has to offer.

The pay has become the #1 attrition driver in 2020’s 4th quarter jumping from the fourth position in 2014. In regions such as India, China, South-East Asia, and the USA, compensation ranks among the top 3 attrition drivers.

Compensation increase anticipation 

With over 60% of employees rating benefits as one of the important contributors to job satisfaction, a change in the pandemic-marred economy has caused a drop in compensation and increased anticipation. As the job market continued to struggle with changing dynamics of work location, reduced compensation saw an increasing trend of employees seeking new jobs.

According to Gartner’s Global Talent Monitor Report sourced from about 30,000 employees in more than 40 countries and regions, compensation increase anticipation has dropped to approximately 9.5% in quarter 4 of 2020, compared to 13% during the same period in 2019.

Increased merit pay expectations 

A strategic move to retain talent is to offer unscheduled pay raises and bonuses to reward deserving employees. It goes a long way not only in minimizing the attrition rate but also in building loyalty and boosting morale.

What is a merit raise?

Merit raise is the reward for the most productive and the highest-performing employees to acknowledge their talent and to encourage others to do better. Some regions have a higher demand for merit raises than others. Of all the regions, in 2020, India, Brazil and Australia at 3-4% have the highest change in merit pay expectations.

Among these regions, Indian talent expected the highest change in base pay. Indian employees expect on average a 9% change in base pay in the coming year.

Talent acquisition: A tricky balancing act 

With changing employee preference and availability of more options, making their choice discerning it is a continuous balancing act for organizations to hire global talent while keeping regional expectations in mind.

1. Attrition and opportunity

The global compensation-switching premium is dropping significantly indicating a manifold increase in global attrition. This presents an unprecedented opportunity for companies to build a globally distributed workforce.

2. Remote talent war

Recent studies indicate that 1 in 2 people won’t return to jobs that don’t offer remote work after COVID-19. Global companies are amending the benefits to include remote work perks for employees to retain talent. If you are looking to build a global team, there seems to be no way around it – you need to offer remote work benefits to employees.

3. Merit pay to retain talent

While compensation will remain an attrition driver, in the long run, merit pay expectations present a regional factor to be addressed to retain talent. For eg: setting above-average merit increases processes and guidelines to help retain talent.

Expect a shift in work culture 

In the war to retain talent, expect more employees to want remote work – at least during some part of the week. According to a study by Boston Consulting Group, 89% of the global workforce agreed that their preference in the future will be the jobs that allow for work from home at least occasionally.

As attrition rates across industries are continuing to rise, companies can capitalize on this wave by expanding globally and building distributed teams. To hire the best of the talent, include region-wise expectations in the compensation models you offer to employees. Finally, to retain the current employees and attract more talent, offer remote work options.

Talent500 can help you hire the top talent from over 50 countries. Fortune500 companies build their distributed teams with us, and you can too, set up a consultation to discuss more.