CompLogix Insights

Does Better Compensation Management Lead to Better Engagement?

Jul 3, 2019

The short answer: yes.

Of course better compensation leads to better engagement! An employee that believes that they are being paid an adequate amount for the work they do and thinks their benefits truly… benefit is bound to be engaged in their work. They will be motivated to prove to their boss or bosses that they are the right person for the job. Not only that, but those who know that their supervisors will be highly involved in the compensation process will also be further engaged. As discussed in this previous post, an employer that expresses genuine interest in their employees’ compensation plan and future goals with the company is a telling indicator of engagement and retention within their company. Ultimately, your employees will inevitably produce the amount of effort that they think they will be compensated with.

However, the longer answer to my question is substantially more complicated.

As you probably know, there are so many factors that go into an employee’s compensation package other than their salary. This includes, but is not limited to: company stock options, health insurance or life insurance, pension plans, vacation and sick days, and various types of bonuses, and because their are so many components to compensation plans, they all affect employee engagement in different ways.

In order to get to understand all of this various parts of a compensation plan, let’s look at how individual parts of the compensation plan affects employee engagement.

First, let’s look at the the primary park of compensation: the salary and the many different ways that it can be configured. A study from the Harvard Business School analyzed how different compensation systems affect employee engagement, satisfaction, and trust. They interviewed over 1,000 different workplaces and 13,000 employees to get input on several different compensation plans and how they affect employee engagement. They found that performance-related pay, including incentive and merit bonuses, had a positive effect on engagement and job satisfaction, while profit-related pay, including share ownership, was less motivating and resulted in less trust in their employers.

On the other hand, there have been previous studies that have linked the numerous benefits of profit-related pay to employee engagement. So, what’s with the inconsistency? It turns out that the type of salary payment should be customized to the position of the employee. Jobs in sales departments should be structured differently than those in reception. Ultimately, salary pay should be configured on an individualized basis to best foster engagement in the workplace.

Another major factor of compensation that influences employee motivation is health benefits. This includes everything from dental insurance, gym memberships, to regular health insurance. This article from Employee Benefit News quotes a Collective Health and Harris Poll that states, “78% of adults in the U.S. say healthcare benefits strongly factor into their decision on where to accept a job.” However, they also state that employees often do not even use the full range of benefits that are offered. In fact only 25% of employees have used their entire benefit package.

So, this means that in order to increase overall engagement and happiness at your company, it might be better to choose more interactive health benefits, such as incentive programs and competitions, wellness competitions, or even sponsored health screenings. Programs that actively involve employees to practice in healthcare have an overall larger impact on workplace engagement than simply insurances plans.

Now, the fun part, vacation. It might be surprising, but offering a fair amount of vacation days and making sure your employees actually use them greatly affects their engagement in the workplace! According to this article, Americans are taking less and less vacation days than they ever have. To put it in numbers, “in 2015 Americans used an average of 16.2 vacation days per year, a full week less than the average from 1978 to 2000,” and “more than half of the workers surveyed (55 percent) left vacation days unused in 2015.” We are taking less vacation than ever before, but what kind of effects does it cause?

First, the Culture IQ article claims that less vacation means less productivity and creativity in the workplace. Without a mental and physical break, it gets harder and harder to produce quality work. Additionally, it lessens trust in employees. The article states that 30% of employees believe that there is no one to do their job if they leave, which in most cases simply isn’t true. There is always someone to cover for an employee who is taking time off. All of these negative effects of less vacation can cause unhappy employees, resulting in lower engagement or even retention rates.

Finally, let’s examine how bonuses affect employee engagement. Dr. Dow Scott from Loyola University did an extensive study on how “total reward programs” affect overall employee engagement. There are a few great breakthroughs from this study. Dr. Scott found that “rewarding engagement through incentive programs indicate that their organizations more effectively foster employee engagement and motivation then those organizations that do not,” meaning that specific incentive or merit-based bonus programs were found to be the most effective. Another interesting finding of his was that it is important for employees to “think in terms of total rewards and not just financial rewards.” This means that monetary rewards may not always be the best choice. Sometimes in-office competitions or an extra sick day may be more impactful to employee engagement than a merit-based bonus.

So, what do you do with all of this confusing compensation information?

It’s obvious that there is no one-size-fits-all compensation plan for every company, and even within companies, different compensation plans work better for different types of work. It truly is difficult to put together a comprehensive compensation plan that will result in the highest levels of engagement with your employees and without breaking the budget. Fortunately, there are many tools that can solve this problem.

A compensation management program is the best option to maximize benefits and minimize costs when trying to decide on a compensation plan for your company. Of course, it is much cheaper and less stressful to purchase a compensation software that figures out all the right balances of elements within the plan. Compensation management software will do all the hard work for you and even create individualized reports on each employee and your company as a whole, to make the process even easier for you.

So, with your compensation software in hand, you will know that you have the best compensation plan for your employee engagement.

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