Is Your Company’s Compensation Strategy In Line with Its Corporate Goals?

December 20, 2011

Goal Alignment Diagram

Is your company struggling to retain key staff members? Is this hurting the long-term stability of your organization and making it difficult to execute against and achieve long-term goals? If so, your company may not be properly assessing the costs of employee turnover and may want to reconsider its employee compensation strategy.

In today’s labor force employees are more mobile than ever before and corporate loyalty has gone by the wayside. It is common to see employees jump around from company to company. However, the costs associated with employee turnover have actually stayed the same or increased over the same period of time as government regulations have become more stringent in terms of employee benefit requirements and as states do away with non-compete clauses that prevent employees from going to competitors.

Startup companies expect higher than average employee turnover as they try to discover their identities and regularly shift their focuses. Pivots change the skill set needs of the startup and affect the interest of the employee base, which leads to diverged interests and higher turnover rates. Startups are focused on short-term milestones and have constantly changing long-term goals that are best met in an agile employment environment. Thus, most startup employers choose to have short-term focused compensation plans for most employees and offer longer-term compensation plans in the form of stock options only to key employees or early hires. This makes sense as their compensation structure is in line with their goals and corporate vision.

From a Short-Term to a Long-Term Compensation Plan

As a company transitions from startup mode into the expansion stage, the corporate vision becomes clearer and less flexible and the corporate goals readjust and become more long-term focused. Consequently, the benefits of corporate stability increase as employee onboarding and training takes a lot of time and costs a lot of money. Additionally, high employee turnover leads to significant productivity losses. Thus, it makes sense for maturing companies to start building long-term compensation and benefit incentives into their employee compensation plans as their corporate strategy and goals become more concrete and focused on multi-year horizons.

Below are four suggestions on how your company can build long-term incentives into your employee compensation strategy:

  1. Create a 401k plan with a corporate matching or profit sharing component that is based on a multi-year vesting schedule that encourages employees to build a career with your company. Many companies build the vesting schedule on a 4-year timeline whereby employees earn 25% vesting in the employer funded side of the 401k at each of their employment anniversaries for the first 4 years.
  2. Establish a graduated vacation schedule that gives longer tenured employees additional vacation days. Many companies provide first year employees with a lower number of vacation days in their first year and reward them with additional vacation days at the completion of each of their employment anniversaries.
  3. Provide private equity options to employees who remain with your company for a minimum number of years and are key stakeholders in your business. This provides an incentive for top employees to build their career around your company.
  4. Offer flexible working options (i.e. telecommuting opportunities, flex schedules, etc.) and/or child care to make it easier for family men and women to build a career with your company without sacrificing too much in their family lives. This will encourage employees to not think twice about their employment with your company when they decide to start building a family.

If you are interested in reading more about compensation strategy, I highly recommend reading my colleague Jessica Ray’s blog series on total compensation. Similarly, I also recommend reading my blog posts on internal branding and corporate social responsibility as incorporating these factors into your corporate strategy have been proven to increase employee morale and employee retention rates.

Marketing Manager, Pricing Strategy

<strong>Brandon Hickie</strong> is Marketing Manager, Pricing Strategy at <a href="https://www.linkedin.com/">LinkedIn</a>. He previously worked at OpenView as Marketing Insights Manager. Prior to OpenView Brandon was an Associate in the competition practice at Charles River Associates where he focused on merger strategy, merger regulatory review, and antitrust litigation.