Top Compensation & Rewards Challenges for 2023

Top Compensation & Rewards Challenges for 2023
We are facing an interesting time in total rewards. The world has gone topsy-turvy post-pandemic. The sudden opening of the job market characterised by the Great Resignation and now by recession, has posed a problem for businesses across the globe to address comp-related challenges.

Compensation and rewards play a huge role in attracting, motivating, and retaining talent. Consider Abraham Maslow’s classic Need Hierarchy Theory which suggests that everyone is motivated by five essential requirements. While this ofcourse means that different people may be at different levels of each bucket of needs, however, it also affirms that the importance of physiological needs through pay packages is common for individuals across levels, companies, and industries.

We are facing an interesting time in total rewards. The world has gone topsy-turvy post-pandemic. The sudden opening of the job market characterised by the Great Resignation and now by recession, has posed a problem for businesses across the globe to address comp-related challenges. According to a survey by Ceridian, “Nearly half (46%) of those who reported looking for new employment said it was because they wanted better compensation.”

Here are some challenges in play with respect to compensation and benefits:

Internal & External Equity

With talent continuously coming in and going out, internal equity may sometimes get affected. While teams aim to hire the best fit and aim to be better with every new entrant, the parity within the team can suffer. Given the war for talent, many organizations also use retention bonuses and mid-year salary corrections to retain people, which add to the inequity.  

External equity can also be a challenge in case the organization does not have a robust process to derive the right compensation. There may be other complex scenarios also, such as re-hiring cases, wherein the boomerangs may re-enter at a higher CTC. Such situations give rise to inefficacies in pay parity.

Lack of Effective Compensation Benchmarking

To ensure pay remains competitive, organizations want to see what similar workplaces in the industry offer candidates for similar roles. Unfortunately, that data can be hard to find, especially for niche roles. Moreover, it may be even more complex to find the right set of organizations you want to benchmark with.

This is especially true in today’s day & age when we have hundreds of small-scale start-ups mushrooming across the globe. Trouble in finding accurate benchmarks is one of the greatest challenges for companies. Experts argue that benchmarking has led to a “race to the top” phenomenon wherein while most organizations aim at staying around the midpoint of the market, this keeps moving the mid-point instead.

Dynamic Environment

The world is constantly evolving in terms of various economic, legal, social, technological, and political factors. These elements like inflation, government compliances, changing taxation structures, etc. are an added hurdle in devising the total rewards strategy.

While HR practitioners are putting all their energy into creating an impeccable compensation mechanism, however, these factors do create some room for uncertainty to be maneuvered through.  

Basket of Benefits

In today’s era when there is a fierce war for talent, companies across sectors are providing innumerable fringe benefits that are off-beat and unique. This makes it challenging for other organizations in the ecosystem to select and prioritise which benefits to offer so that they remain competitive in the market and are able to attract talent.

While this is dependent on the feasibility and context of the organization in terms of industry, roles, demographics of the people working, etc., this is the most commonly compared aspect by employees, thus becoming a critical aspect to be addressed by comp committees.

Establishing an Objective Relation between Compensation & Performance

Figuring out how to appropriately pay for employees’ performance is crucial, however, it becomes a challenge if organizations don’t have a robust and well-defined performance management process in place. If your compensation should be performance-based, then performance must be evaluated fairly, and consistently. Hence, having an objective performance management system is a must for any great workplace.

Here are some ways you can fix these challenges:

  • Re-evaluate your compensation philosophy by aligning it with your organization’s strategy. This shall govern the kind of talent required and therefore the compensation mechanisms. For example, if your organization’s strategy is to drive innovation through technology, you may hire talent with cutting edge tech-skills. This shall further have bearing on the pay scales as well as the pay constitution of such folks. 
  • Ensure legal compliance by adhering to pay regulations, which act as the hygiene factor before determining the pay scales.
  • Partner with a trusted benchmarking consultant. You may consider collaborating with trusted and renowned compensation benchmarking partners who have reliable information and wide data set.
  • Conduct equity analysis within your company at least once per year to help you uncover any pay disparities.
  • Compensation metrics are important as they evaluate the effectiveness of your compensation strategy. By measuring this you can ascertain whether you should improve certain tenets of your total rewards. You may want to leverage useful metrics like compa-ratio, pay penetration, or any other in context to your requirement to spot compensation issues and help rectify them.
  • Make sure you communicate the science and logic behind your compensation and benefits strategy to help people really see the effort and approach that go behind fixing CTCs. This shall help create a climate of trust and transparency.
  • Introduce contemporary fringe benefits in context to your workplace and people. Some examples are holistic wellness support, extending medical benefits to families of employees, flexible work mode, etc.


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