Can Flexible Compensation Pay Plans Help with Salary Compression?
Pay transparency laws have put some employer compensation practices on the hot seat. We recently represented an older worker who was making $90,000.00/year - while her employer was hiring externally at $150,000.00/year to fill vacancies for the same job. This is an all-too-common dilemma for employees who have been loyal and committed to one employer over a long period of time – they fall behind on the pay scale, and the employer takes no initiative to offer a market-based pay increase.
Although we were able to get this employee a full salary adjustment to bring her up to market, there are many people who would not even know they could ask for this type of help – and they fall further behind every year they work.
To help address employee dissatisfaction about their compensation packages, some experts are now recommending employers implement more flexible compensation programs. One solution could be to expand long-term incentive programs to provide more employees with equity. For example, some companies are allowing employees to allocate their pay package between salary and incentives as the employee sees fit:
Netflix Inc. permits employees to receive their compensation by choosing among cash and stock options.
Shopify Inc. also lets employees choose how much of their pay is in cash and how much is in options, but it goes further by enabling workers to direct the equity portion of their pay between stock options and restricted stock units.
It is probably too risky for most people to forego a large portion of base salary and opt for all incentive compensation. But the autonomy of such a process is exciting. This is a risk/benefit analysis that could become normal in the future for employees, and could be a helpful tool for managers to use for long-term employees who face base salary compression. That said, employers who implement flexible compensation programs will need to clearly communicate the risks and benefits of this approach to employees. And this type of innovation can only work with technology capable of accurately administering widely-varied employee compensation decisions.
We hope to see more total rewards programs that keep employees engaged, and reward those who have made meaningful, long-term commitments to the success of the company. Even offering significant monetary – or equity - bonuses to employees who develop and implement new ideas is something employers could do now. All employees appreciate “thank you” emails and free movie tickets, but the future we see for meaningful employee retention is with cash and equity.