The Evolution of Compensation and Benefits for a New Era
The Evolution of Compensation and Benefits for a New Era
By Kevin Gallegos, MBA, PHR, SHRM-CP
Do you want your compensation and benefits strategy to rival that of Google, Apple, or Facebook? These companies offer employees unique and over-the-top benefits in addition to competitive salaries. According to Forbes, these companies are known to provide benefits such as concierge services for completing personal errands, free massages, and access to on-site dieticians and chiropractors, among much more. Imagine how productive and engaged your employees would be if they could choose from a multitude of restaurants and cafés for lunch, similar to those on a Google campus.
Now, let's be honest, not all companies have the same resources as these giants. However, that doesn’t mean your compensation and benefits strategy can't be competitive and attract top talent to your organization. Gallup indicates that despite low unemployment rates and a decline in quit rates, there are historically low levels of employee engagement and well-being. This article explores how companies of any size can innovate their benefits offerings to enhance employee satisfaction and drive engagement using practical and achievable strategies.
The Evolution of Employee Benefits
Employee compensation and benefits strategies are constantly evolving to meet the needs of employees and adapt to the social climate of the times. To better understand how to develop innovative and adaptable strategies, it's important to understand how compensation and benefits have evolved over the years.
Harsh Working Conditions of the Industrial Revolution
During the period known as the Industrial Revolution, compensation was primarily transactional, with companies paying their employees arbitrary wages for grueling work. Protections and safety measures were often sparse, if they existed at all, and well-being was non-existent. The harsh conditions and unfair wages ignited the labor movement that fought for better wages and safer working conditions (easysociology.com).
The Revolution of Compensation and Benefits
Coming out of the Industrial Revolution, employee compensation and benefits saw a revolution of their own. The beginning of the 20th century saw companies developing innovative offerings for their employees, such as health benefits. Aetna Life Insurance Company and Travelers Insurance Company began to offer insurance for total temporary disabilities, and by 1910, the London Guarantee and Accident Co. in New York offered what is considered the nation's first group health insurance policy (BLS.com). By 1938, workers saw even more benefits and protections with the enactment of the Fair Labor Standards Act (FLSA).
Modernization of Compensation and Benefits Offerings
In the latter half of the 20th century, there was a significant boom in compensation and benefits offerings with the passage of legislation such as the Employee Retirement Income Security Act of 1974 (ERISA), the Pregnancy Discrimination Act in 1978, and the Family and Medical Leave Act of 1993 (FMLA) (BLS.com). Now that employee protections had become the norm, and with the rise of multinational corporations, companies had to develop more competitive strategies. This included flexible benefits plans, stock options, and more efforts to achieve work-life balance.
Changing Employee Demands in a Post-COVID World
According to a SHRM survey, in 2024 there was a 23% increase in the number of benefits that employers offered to their workforce, stating that employers are doing so "both in an effort to stay competitive in a still-hot job market and as a way to help support employees and improve their well-being […] the approach is less one-size-fits-all, and instead more nuanced, more tailored." This is due to the evolving needs of employees, economic and social conditions, and the continuing challenge of attracting and retaining top talent.
Understanding the Workforce of the Future
Sometimes it is hard to believe just how quickly society is changing and evolving. Technology has not only brought the world closer together but has also made our daily interactions feel less personal. Companies made big swings towards social justice issues and many are now backtracking, but that doesn't change the fact that all employees want to be treated fairly and equitably. Work from home and work from anywhere, sparked by the pandemic followed by widespread return to office mandates, have changed employees' perceptions and expectations of a physical workplace. Societal shifts play a big role in how people want to be treated, how people interact, and what people expect from their workplaces. People drive businesses towards success or into the ground, and understanding these changes is essential in meeting the needs of the evolving workforce.
The Six-Generation Workforce
According to HBR, this is the first time in history that there are six generations simultaneously in the workplace, known as the Silent Generation, Baby Boomers, Gen X, Millennials, Gen Z, and now Gen Alpha. While there is some overlap, each of these groups has had different formative cultural experiences that shaped their outlook on the world and the workplace. Even within each of these groups, there are differences informed by race and ethnicity, economic class, gender identity, sexual orientation, and a variety of other defining demographics. Forming strategies to accommodate the six generations has some overlap potential but can also be contradictory. It is essential to craft adaptive compensation and benefits strategies that account for the varying needs, wants, and expectations of employees in each of these generations.
Bringing Your Whole Self to Work
Gone are the days of work/life balance. Employees are looking for more than just balance between their work life and personal life; they want integration and cohesion. It has typically been expected that employees leave personal issues outside of work, but that simply isn't possible or realistic. A Gallup Report indicates that only 50% of employees report thriving in their overall lives, and those who are not thriving are more likely to miss work because of a health issue and more likely to seek another job. Our personal lives affect our performance and engagement at work. When a parent can't secure reliable childcare, or a working student can't find a job that supports their school schedule, it causes turnover and, at the very least, creates distractions for otherwise productive employees.
The Rise of the Robots
There's no doubt that technology and the rise of generative AI will shape the future of work; let's just hope it's more like The Jetsons than Terminator. AI isn't actually new, but its widespread use is, and there are still many questions about how it will affect the workplace and how workers will react and adapt. What we do know is that companies are beginning to look to AI to gain a competitive advantage by streamlining operations, increasing productivity, and offering innovative solutions for their customers. Although AI and technology are enhancing the workplace, they will not, at least for the foreseeable future, replace workers.
Key Elements of a Competitive Compensation and Benefits Strategy
There are tons of compensation strategies, benefits packages, and other non-monetary perks that you could provide in your organization. Some of the staples in most organizations include health, dental, and vision benefits, paid time off (PTO), short- and long-term disability benefits, etc. Other benefits and perks that are becoming much more common to offer include stock options, flexible working arrangements, pet insurance, paid parental leave, and much more. The compensation structure and benefits that you offer to your employees vary from company to company, but there are certain key elements that every company should build into their compensation and benefits package to stay competitive.
Staying Agile in Tumultuous Times
If there is anything HR professionals have had to learn over the past five years, it's that things can change quickly, and they need to prepare for the unexpected. As our society changes and evolves, so will the needs and wants of our employees. It's important to plan for this when developing your compensation and benefits strategy. As mentioned earlier, the number of unique benefits that companies have started to offer has increased substantially, and the only logical explanation for that is because employees are expecting more. While we can't anticipate every change, we can anticipate that things will change. When developing your strategy, you don't want to be too rigid where you back yourself into a corner; you want to have some room to move and pivot as necessary.
To stay agile, it's important to keep an eye on industry trends. What are other companies in your industry offering? What are the overall trends in the geographic regions that you operate? What are the economic conditions? What are the demographics of your employees? All of these can help inform the specifics of your compensation structure and benefits offerings.
Equal Pay for Equal Work
This wouldn't be an HR article if it didn't discuss the importance of compliance with legal requirements. Compliance with equal pay laws and anti-discrimination laws is a must for every organization, not only to avoid lawsuits but because even the perception of unfairness and inequity in pay and benefits can cause employees to seek employment elsewhere. SHRM states that "to effectively recruit and retain employees, an organization must have internal equity, where employees feel they are being rewarded impartially based on performance, skills, and other job requirements." SHRM goes on to point out that pay transparency is also important and goes a long way in attracting candidates and maintaining equity.
Ensuring fairness in your benefits offerings is also important. Not every employee will find every benefit offering useful or valuable, and different benefits offerings can be made to different classifications of employees and roles. Benefits decisions should be made only on "bona fide employment-based classifications" and that these decisions "…are nondiscriminatory, keeping in mind the adverse impact on protected groups and any unintentional discrimination that may result from those decisions" (SHRM).
Integration with Technology
If you've been in HR or in the compensation and benefits space for a good amount of time, you've seen how much it has changed over the years. Internal payroll software has advanced, HR tech companies are on the rise, and according to HR Brew, the compensation software market has a "…projected annual growth rate of 11% over the next five years."
These products, programs, and software are meant to take the guesswork out of compensation strategies and the grunt work out of administering benefits programs. With the vast offerings out there for compensation and benefits professionals, there are certainly products that will fit your needs and budget.
Cohesive and Comprehensive
Forbes says it best: "…today's employees expect more than just a paycheck from their employers. They want a meaningful employee experience that meets them where they are and values and supports their needs as people." Employees expect their companies to offer a well-rounded, comprehensive, and cohesive total rewards package. No matter the size or resources of your company, you can create a comprehensive total rewards strategy that meets the needs of your employees.
A total rewards strategy is not only about monetary or financial benefits, though that is part of it. SHRM describes total rewards as the employee value proposition, representing the monetary benefits such as pay and benefits, along with training, recognition, career development opportunities, etc., all in return for the employees' performance. The aspects of a total rewards program or strategy all have to be integrated and cohesive with your company's goals to be effective.
Crafting Your Compensation and Benefits Strategy
Crafting a cohesive and comprehensive compensation and benefits strategy can be a daunting task, but the end result can help to engage your workforce, attract top talent, improve performance, and lead your organization to success. There are several steps that should be taken in crafting a strategy that meets the needs of your unique workforce, that is fair and equitable, and that is agile for the changing times.
Define Your Organizational Goals and Objectives
Defining your organizational goals and objectives is an important step in any organization and in developing a cohesive compensation and benefits strategy. This step will help to identify what type of compensation structure and benefits offerings are necessary to motivate and engage your employees in reaching your organizational goals and objectives.
Clearly identified goals and objectives will help you identify the behaviors and results to reward and recognize in an incentives program, the skills that need to be developed through a professional development program. The goals and objectives will also help to identify the job roles necessary and the career progression employees may have access to.
Do Your Research Both Internally and Externally
Understanding market and industry trends is an essential part of crafting a compensation and benefits strategy. Through research, you can identify what other organizations in similar industries, similar geographic regions, or with similar workforces are offering their employees. Researching market and economic trends can help your organization anticipate changes in market conditions in order to stay agile.
Understanding your workforce is equally, if not more important as doing external research. Analyzing the demographics and understanding the needs of your workforce can help you pinpoint what benefits to offer. Surveying employees, holding town halls or listening sessions can also go a long way in truly understanding the needs and wants of your employees and showing them that you value their input.
Establish a Pay Structure and Benefits Package
Now that you've defined your organizational goals and objectives, done research to understand what others in your industry are offering, and surveyed your workforce to determine their needs, how do you decide what your pay structure and benefits package will look like? This will largely depend on your company's capabilities and resources, and you will likely have to balance your offerings to elicit the best results.
This is where technology can be your best friend. There are many services and software out there that provide benchmarking to ensure that your compensation structure is fair and aligns with market and industry trends. You'll want to ensure that these pay structures are designed to keep employees engaged and motivated to continue to increase their skills or performance. When it comes to benefits, there are platforms such as SHRM's Employee Benefits Survey Results interactive online tool that can help you determine what unique benefits companies in various industries are offering. SHRM's tool covers health care, retirement, leave, family care, flexible work, and development benefits.
Continuously Monitor and Evaluate
Now that you have established a comprehensive and cohesive pay structure and benefits package, you'll want to make sure it is obtaining the results that you want and is found valuable by your employees. Set goals and milestones for usage and other factors to determine when to make changes, create new initiatives, or to abandon ship. Listening to your employees and developing a regular survey schedule to obtain insights from your employees can help determine if your strategy is hitting its mark.
As discussed throughout this article, things change quickly. Keeping your finger on the pulse of your employees and market and industry trends can help to ensure that your compensation and benefits strategy is truly engaging your employees.
Challenges and Opportunities
With any strategy implementation within an organization, there are bound to be challenges that need to be navigated and overcome. By understanding and anticipating these challenges, you can create plans on how to overcome them.
Challenge 1: Financial Constraints
Smaller companies may have budgetary and financial constraints that limit the types of benefits that they offer, but by focusing on cost-effective benefits and a little creativity, you can offer benefits with a high perceived value without breaking the bank.
Challenge 2: Balancing the Diverse Needs of Your Employees
With six generations of employees from different backgrounds and lived experiences, it can be difficult to narrow down and align your benefits package to suit the needs of every employee, but implementing a flexible benefits program can allow employees to pick and choose the benefits that fit their personal and professional needs.
Challenge 3: Technological Integration
The vast amount of offerings and the speed at which technology is growing can be daunting to even the most tech-savvy, but with some research, you can find the tech solutions that work best for you and your organization and use them to your benefit for streamlining your offerings and administering efficiently.
Looking Forward
Compensation and benefits have come a long way from their meager beginnings before the days of the Industrial Revolution and are continuously changing and evolving at an exponential rate. As we navigate the modern employment landscape, we must continue to evolve our compensation and benefits strategy to reflect societal shifts and technological advancements. We don't know exactly what the workplace will be, but if the trends continue, benefits will need to be personalized, flexible, and meet the unique needs that employees have. Creating an innovative compensation and benefits strategy that is agile can help organizations meet the needs of their employees and create a workplace that is engaging.
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About the author Kevin Gallegos, MBA, PHR, SHRM-CP, is a self-proclaimed "workplace sociologist" and employee experience professional. As the co-founder of Founder Bourne Consulting, Kevin specializes in transforming organizational cultures to enhance employee engagement and business performance. With an MBA in Human Resources and over 15 years of leadership experience across various sectors, Kevin combines a deep understanding of sociological principles with practical HR expertise to develop innovative workforce strategies. He is a graduate of the UMass, Global and holds a B.A. in Sociology from California State University, San Bernardino
Posted by kmichaelgallegos on Jan. 5, 2025 / HR Insights / Subscribe 0
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