Compensation—salary and wages—is the largest component of an organization’s total labor costs, accounting for up to 70 percent of an organization’s total costs.

And yet many organizations seem curiously uncertain about how to approach this significant area of spend. The uncertainty about how best to approach compensation and the lack of positive results is not surprising, given the rapidly evolving environment that compensation strategies need to address.

To begin, is the radical shift in work and jobs. Not only is the “half-life” of individual skills diminishing, but entire roles are also changing as work is being redesigned to integrate human workers with robotics and AI. The World Economic Forum estimates that 42 percent of the skills required from the global workforce will change between 2018 and 2022, and that by 2022, no less than 54 percent of all employees will require significant reskilling and upskilling.

Another big shift is the desire for greater transparency, placing pressure on organizations as it relates to their compensation practices. This reflects a growing sentiment that organizations should bear greater responsibility for answering questions about whether compensation works—and for whom.

Compensation fairness is another significant challenge in the era of the social enterprise. As the inequality gap widens, external stakeholders are zeroing in on compensation, taking some organizations to task for failing to pay a living wage. Compensation also remains a focus point to help address potential workplace bias and improve diversity-related outcomes. New research draws a direct connection between perceptions of compensation fairness and employer brand, employee engagement, and workforce wellbeing.

 

To navigate these challenges effectively, organizations need a new path forward that is anchored to data and benchmarks and reflects the fact that compensation is more than a set of numbers. As a starting point for compensation’s reinvention, we return to the five principles for human design we introduced in last year’s Global Human Capital Trends:

   • Purpose and meaning,

   • Transparency and openness, 

   • Ethics and fairness,

   • Growth and passion,

   • Collaboration and personal relationships.

By considering these principles, an organization can evaluate its compensation practices for its fit with worker needs, its efficacy in supporting goals such as worker development and marketplace competitiveness, and its sustainability with respect to broader social norms and expectations. The desired end result: a compensation strategy that improves an organization’s ability to accomplish its objectives while meeting stakeholder needs and expectations in a more transparent world.

 

In this series of articles, we will introduce you to each of the 2020 Deloitte Global Human Capital trends and show how organizations can work within an environment shaped by the fusion of technology and people to embed purpose, potential and perspective into the DNA of how they operate. If you would like more information on The compensation conundrum – Principles for a more human approach, please contact the Deloitte Banking and Human Capital Leader, Pascal Martino (pamartino@deloitte.lu).

 

And if you would like to view the full 2020 Human Capital Trends report, please download it here.

 

Look out for our next article “Governing workforce strategies – New questions for better results” to learn how using metrics can help leaders to understand what the future may hold and assist them to make bolder choices in preparation.

 

Communicated by Deloitte Luxembourg


Publié le 28 septembre 2020