When organizations find themselves unable to match the market rates or pay employees as much as competitors, it can feel like a big disadvantage in the competition for talent. But compensation isn’t just about salary; it’s about the entire value offered to employees.
As leaders, you have the ability to get creative with compensation strategy, finding ways to reward and retain employees even when you can’t offer the highest pay. By focusing on other areas—such as bonuses, incentives, or even workplace culture—you can build a compensation package that retains your current employees while allowing you to attract talent to open positions.
How is that possible? It just takes a little creativity. Here are four places to start:
1. Review Compensation Mix
When you can’t keep up with competitors in terms of base pay, instead look at your overall compensation mix.
Compensation mix is the combination of salary or wage along with additional financial and non-financial benefits like bonuses, equity, health benefits, and retirement plans.
Base salary isn’t the only factor that matters to employees—variable pay options can be just as valuable, if not more so. By shifting the focus to variable options like bonuses, incentives, and commissions, you can create a more attractive compensation package that rewards performance.
Here are some options to consider:
- Bonuses: Offering performance-based bonuses tied to individual, team, or company-wide goals can be a powerful motivator. It allows you to reward top performers without committing to permanent salary increases.
- Incentive Programs: Whether it’s quarterly incentives for hitting key milestones or project-based rewards, incentives give employees a reason to perform at a high level and stay with your organization.
- Commissions: Particularly for sales or business development roles, commissions tied to results can be a win-win. It’s a great way to align compensation with success without stretching your payroll budget too far.
By simply reviewing your compensation mix outside of base salary and wage, you can build a balanced and appealing package that provides financial flexibility.
2. Go Beyond a Traditional Fixed Salary Model
Sticking to a traditional fixed salary model may limit your ability to compete for talent, but there are plenty of ways to build a compensation philosophy that aligns with your business goals while providing employees with value beyond their paychecks.
Here are a few options to consider:
- Profit-Sharing Plans: Offering employees a share in the company’s success creates a sense of ownership and encourages everyone to work toward shared goals. Profit-sharing aligns rewards with the business’s financial performance, making it a smart, sustainable option.
- Stock Options or Equity Plans: For companies that want to retain employees long-term, offering stock options or equity stakes can be a valuable part of the compensation package. This not only incentivizes loyalty but also helps employees feel invested in the organization’s future success.
- Deferred Compensation Plans: When immediate salary increases aren’t a possibility, deferred compensation allows you to offer rewards that are paid out at a later time. This could include retirement plans, long-term bonuses, or payouts tied to achieving specific milestones.
- Non-Cash Perks and Benefits: Beyond financial rewards, non-cash perks like extra vacation days, wellness programs, and remote work flexibility are attractive offerings.
3. Understand What Motivates Employees
Yes, compensation is a huge motivator for employees, but it’s by no means the only thing that motivates employees to perform or stay with an organization. Learning what keeps your employees energized and loyal can help you craft your own employee value proposition.
ERC President Kelly Keefe recently published a post with data from top Northeast Ohio companies about what matters to top performers. Here are a few key non-monetary motivators to consider:
- Work-Life Balance: According to our data, this is the second most important job attribute (behind compensation). Offering flexible schedules, remote work options, or generous time-off policies can be highly motivating. Many employees prioritize a healthy work-life balance over a larger paycheck.
- Purpose and Meaningful Work: Employees are often motivated by a sense of purpose. If they feel their work has meaning and contributes to something larger, they’re more likely to be engaged and committed. Sharing your company’s vision and how each role contributes to that vision helps employees feel connected to the bigger picture.
- Growth and Development Opportunities: Many employees are motivated by the opportunity to learn and grow within the company. Providing professional development programs, mentorship, and clear career paths can be just as appealing as a higher paycheck. When people see a future for themselves at your organization, they’re more likely to stay.
- Recognition and Appreciation: Simple recognition for a job well done goes a long way. Employees want to feel valued for their contributions. Regularly acknowledging achievements—whether through public praise, awards, or even a simple handwritten note—can make a big impact.
Want to uncover what matters most to our team? Ask your top performers! What do they value most about their role and the company? The answers will help you refine your value proposition and design a compensation strategy that resonates with current and future employees.
4. Think of Compensation as a Negotiation
When it comes to employee compensation, you should approach it as a negotiation—one that benefits both your organization and each individual team member.
The key is to present a variety of options that meet both your company’s financial goals and your employees’ personal and professional needs. By offering more than just a fixed salary, you can build a compensation package that feels fair, flexible, and competitive.
Here’s how to approach compensation with a negotiation mindset:
- Understand Employee Priorities: Not all employees prioritize salary above everything else. As we mentioned, some may value extra vacation time, flexible working hours, or professional development opportunities. Before entering negotiations, take the time to understand what matters most to each individual and be prepared to offer benefits that align with their values.
- Offer a Balanced Mix of Compensation: Instead of focusing solely on salary, use the strategy we outlined above to provide a balanced mix of base pay, variable compensation (bonuses, incentives), and non-monetary benefits. For example, employees might be open to a slightly lower salary if you offer significant flexibility, a robust retirement plan, or performance-based bonuses that increase their overall earning potential.
- Highlight Growth Opportunities: Many employees place a high value on their long-term career development. Offering benefits like tuition reimbursement, mentorship programs, or leadership training as part of the overall compensation package can incentivize employees who are focused on career advancement.
- Be Transparent and Flexible: Transparency is important to a successful negotiation. By clearly explaining the company’s financial position and compensation philosophy, you can create trust and facilitate a productive conversation. Flexibility is equally important—if an employee values something specific, like remote work options or equity in the organization, consider how you might be able to adjust your offer accordingly.
- Focus on Mutual Benefit: The best compensation negotiations are those where both sides feel they’ve won. Make sure the package you offer aligns with your business goals but also gives each employee a sense of value and satisfaction.
While it may seem challenging to compete for talent when you can’t match the market on salary, there are opportunities.
By reviewing your compensation mix, going beyond a traditional fixed salary model, understanding what motivates your employees, and approaching compensation as a negotiation, you can build an attractive, well-rounded package.
If you’re looking for guidance on how to implement these strategies, our team at ERC can help. Learn more about ERC’s compensation consulting services.
