Compensating the Workforce of 2020: 7 Ways to Adapt Your Strategy
As we’re on the cusp of entering the next decade—the 2020s—many in the HR community are concerned about retaining talent, hiring good people without overpaying, and ensuring that newly-trained employees aren’t quitting within their first few months. HR leaders recognize that workforce demographics are shifting, and they have to adapt their people practices, including the way they make pay decisions.
Below are four major trends that will shape the workforce of 2020 and seven recommendations on how organizations can make necessary pay adjustments to hire, engage and retain the workforce of the future.
Multiple Generations in the Workforce at Once
At this time, we have four generations in the workforce—each with their own working styles and approaches to collaboration, communication, and decision-making. Each generation has different expectations regarding feedback, rewards, the pace of promotions, and the level of transparency from their employers. While baby boomers are concerned about income stability and retirement, millennials may be more willing to take a pay cut in order to get the “right” career advancement opportunities and work in their ideal environment (e.g. remotely).
To successfully integrate all types of workers in your workplace, you’ll need to think about your total rewards package holistically, as a mix of base pay, incentives, benefits, learning and development opportunities, and culture.
Consumerization of the Workplace
Consumerization of the workplace is the idea that modern workers (particularly millennials) are selecting their jobs in the same way that they select their smartphones, vacation destinations, or sneakers.
By 2020, millennials (born between 1980 and 1994) will make up nearly half of the workforce and 20 million members of generation Z (born between 1995 and 2010) will start their careers. As Mercer’s HR 2020 Report states, “Millennials feel more entitled to jobs, projects and experiences that are tailored in ways that they (as consumers) find personally meaningful.”
Millennial employees expect a greater say in shaping the content of their assignments, goals, where they do their work, and what their work environment looks like. They expect to learn new skills on the job, receive frequent feedback, move up the ladder quickly (and be paid accordingly), and have seamless technology in the workplace.
Furthermore, millennials have higher expectations of open communication. They want their employer to be transparent and honest about matters of corporate strategy, goals, and financial performance. They also think it’s normal to talk about salaries, and they want to know how their employer makes compensation decisions.
Researchers have started to study generation Z’s workplace expectations as well. Gen Z-ers appear to be a group that wants to work hard and learn. After seeing their parents go through multiple recessions and the staggering rise of college tuition, they tend to be a generation that wants to plan for their financial future, according to researchers at the Center for Generational Kinetics.
Last but not least, younger workers are more likely to seek out work that feels like “more than a job” and aligns with their concept of who they are.
The Gig Economy is Here to Stay
With the rise of on-demand companies and freelance marketplaces, more and more workers are using technology to support side incomes. Some have chosen to make freelancing their primary gig for the benefits of increased flexibility, autonomy, cash, and professional development opportunities.
From 2005 to 2015, 94 percent of net employment growth in the U.S. economy came from alternative work arrangements, according to a 2016 study by economists Lawrence Katz and Alan Krueger. According to MetLife’s 2018 Annual U.S. Employee Benefits Trends study, 51 percent of employees said they are interested in contract or freelance work as opposed to a full-time job. If freelancing continues to grow at its current rate, the majority of U.S. workers will be freelancing by 2027, according to projections in the Freelancing in America survey published in 2017.
The very nature of a job is changing. Here are three ways in which jobs have evolved:
Slashies: More jobs are becoming hybrid roles. For example, Sales/Account Management, Customer Renewals/Customer Support, Office Manager/HR/Payroll. In smaller organizations, it’s common for workers to wear multiple hats out of business necessity. Hybrid roles, however, aren’t always born out of business needs. By giving responsibilities in multiple domains, employees learn new skills faster, giving them a sense of career progression and helping them feel like their job matters to the organization.
Bag of Skills: Younger workers tend to be more intentional about crafting their own careers compared to their older colleagues. Rather than staying with one employer for multiple years or decades, many younger workers are taking a portfolio approach to their careers and asking “what are the unique skills and experience I can gain from joining this organization?” And once they’ve gained that experience, these workers may feel ready to move onto the next employer where they can gain a different set of skills and experiences.
Additionally, skills themselves are becoming a greater factor in determining pay. According to PayScale, employees with in-demand skills (e.g. Amazon Web Services for software developers, emergency medicine for nurses) can command a double-digit pay rate increase compared to workers in similar roles without that skill.
Automation – Research shows that jobs that can be automated are disappearing, such as receptionists, labor-intensive data entry jobs, warehouse managers, and accountants. On the other hand, jobs relying on human judgment are in high demand, such as digital marketing, business intelligence, data analysis, data science, and engineering.
Seven Ways to Shift Your Compensation Strategy
It’s critical to develop a compensation and rewards program that appeals to the future workforce while meeting the needs of today’s employees. Here are seven aspects to consider.
1. Mix and Match
Knowing that multiple generations are in your workforce, it’s important that you take the time to understand what each segment of your workforce wants, so you can develop personalized employee value propositions for your core workers.
To understand your workforce needs, segment your employees using different workforce personas. You can create personas based on job function, level, mindset, and generation. For each persona, understand what attracts these employees to your organization and what keeps them there. Are they more likely to be rewarded by incentive pay, promotion, base pay or retirement benefits? What’s the right mix of rewards for the various segments of your workforce? Also, can you give your employees the ability to pick and choose from a menu of options?
2. Reward Performance
Rewarding high achievers with cash, benefits, and learning and development opportunities is the best way to retain talented workers—especially younger ones who are eager for more of everything (e.g. pay, opportunities, better titles).
When you reward workers for their performance with meaningful measures, you send the message you value results and effort. As a result, your employees will feel fairly paid and be motivated to spend their discretionary energy on their work.
3. Reward People More Frequently
In a world where tenure is declining across many industries and top performers have lots of options, savvy organizations are rethinking when and how often they reward employees. If you typically only give annual bonuses, consider giving them out quarterly or giving the whole team a bonus right after they’ve completed a big project successfully. If your variable pay to employees is only tied to company performance, consider tying at least a portion of the variable pay to individual achievements.
According to a 2018 PayScale survey, annual bonuses are on the decline but quarterly bonuses are on the rise. Also, organizations are using more types of rewards (e.g. spot bonus, individual incentives, public recognition, etc.) to recognize high performers and retain key talent.
4. Future-Proof Your Pay Structure
In today’s highly volatile market, having a compensation structure that can easily weather changes is a must. Is your compensation structure flexible enough?
For example, are you still using the classic grade-based pay structure where every employee is placed into a grade or level? While pay grades have worked in the past—when jobs remained relatively static and people stayed in the same roles for a long time—they don’t work as well anymore. Jobs today are evolving rapidly, and as workers gain new skills, they are expecting their salaries to increase accordingly.
Consider building out salary ranges for each of your positions. When you implement job-based ranges, you’re forced to really understand the essential function of each job, the skills required to do the job, and how the job is valued in the market. It’s much faster to update the pay range for a single job when the market shifts than it is to try to reconcile where a job should be moved in a grade-based structure.
5. Talk About Pay Rationale With Employees
Workers of the future will expect more open and honest communication about all matters of the business, including how pay decisions are made. Unlike workers in previous generations, millennials feel comfortable discussing pay openly at work.
By being open with employees about how you pay, what you pay, and why you pay the way you do, you can get ahead of any concerns your employees may have about their pay and their future in your organization.
6. Provide Learning and Development Opportunities
Compensation and development should go hand in hand. Millennials are known to be eager for advancement, but they aren’t the only ones who want more. Development and advancement do not have to be about promotions. It could mean new assignments, cross-team projects, attending conferences, education reimbursement or mentorship programs.
Here are some questions to consider as you start to plan your learning and development initiatives for the next year:
- Are there real career opportunities available within your organization?
- Are these visible to your talent pool?
- Do you have support structures for employees to manage their careers?
7. Develop Meaningful Benefits for Gig Workers
If your organization is using gig workers, independent contractors or freelancers, rethink what benefits you can provide them. Organizations also have to consider how they can offer benefits without having to re-classify its on-demand workforce as employees.
To start, you’ll want to think about what gig workers are lacking currently. Gig workers need:
- A single place to manage benefits regardless of income source
- A single, common way to fund those benefits
- A way to manage income fluctuations and mitigate the risks of catastrophic income losses
In the end, the same principles you would use to create rewards programs for full-time employees apply to creating programs for gig workers: a one-size-fits-all approach will not work. The best thing to do is to go out and ask your freelance workers what they want and need.
Clearly defining tomorrow’s compensation strategy today will be key to retaining, engaging, and attracting the workforce of the future. Going into 2020, employees will continue to expect fairness and transparency, as their experience as consumers begins to shape their expectations for their employers. They will place a high value on experiencing a sense of progress in their professional lives—both in the work assignments they tackle as well as their pay trajectory. Is your compensation plan ready to meet the needs of tomorrow’s workforce?
About the Author
Jingcong (“JC”) Zhao is a Content Marketing Manager at PayScale. She enjoys sharing ideas and stories on how compensation professionals, HR leaders, and business leaders can build winning organizations. JC spent the last five years in communications, content strategy, and demand generation roles in B2B software companies as well as agency settings. Prior to PayScale, she led Content Marketing for Socedo—a company that helps B2B marketers automate lead generation through social media.