The evolution of compensation

The Cultural Revolution of Employee Compensation

​Compensation is evolving. For decades, work has been rewarded through hourly or salary pay designed to match an annual assessment of worth. There has been a simple time in – money out exchange determined by the employer. But pay and incentives are evolving to a more complex structure built around partnership and purpose. If modern leaders fail to recognize this shift, they may be left maintaining a workforce of increasing vacancies.

The Current Workers Compensation Definition

So just what is compensation? Compensation is the ways in which a leader pays or rewards their followers for their service. For employers, workers compensation is usually defined in terms of a salary, hourly wage, and benefits like health insurance and retirement plans.

The struggle for many today is understanding what is adequate compensation. This can be a struggle for leaders and followers alike. A leader may wonder if they should raise the salary of critical employees to keep up with inflation. Employees may wonder if the move from hourly to salary is worth it. For everyone, the question is often when and how to ask about salary and benefits for a current role. What is a fair pay rate? What should even be considered in the payment and compensation discussion?
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Before we answer these questions, we have to understand the current situation.

The Compensation Conundrum

With the continuing effect of the pandemic and the looming departure of Baby Boomers from the workforce, many CEOs are stuck in an endless cycle of hiring with no clear end in sight. Worse still, the quit rate for many of these works has nearly tripled in the past two years. This has left leaders with the increasing challenge of maintaining quality workers while managing a variety of economic demands.

On the other side of the situation, Gen Z workers have embraced the idea of quiet quitting. There is a firm, cultural shift away from endless work hours toward doing the job they are paid to do. Rather than working a salaried, but largely unpaid, overtime or “going the extra mile” for the team, more and more workers are content to do what some CEOs would argue is the minimum.

No matter where you fall on this debate, one thing is clear: the standards for compensation are in turmoil. What comes next will shape the future of work for decades to come.

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Employee Compensation Trends

History has demonstrated numerous changes in pay and labor over the centuries. Each system has fit the needs of their time. Whether examining the barter economy, indentured servitude, salaried 40-hour work weeks, or the gig economy, standards continue to shift as demands and technology change.

With the development of a digital, remote, globalized workforce, new opportunities are forcing greater competition between employers. It’s no longer enough to offer more pay than the store next door. Virtual work has made employment a national and even global game. With so many opportunities, it is no wonder so many younger workers are comfortable resigning in search of greener pastures.
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But what exactly are the greener pastures?

Greener Pastures of Workplace Culture

According to Gallup, Gen Z and Millennials want employers who consider and care about their well-being, are ethically-minded, transparent leaders, and offer an inclusive working environment. In simple terms, the future of work wants to employment with decent, caring leaders in a kind, open environment.

The current structure of time in – money out does not fit this new paradigm. Of course, efforts by powerhouses like Google and Apple have offered incentives for their workers beyond the financial. But there is more to this trend than a free cup of coffee and sleeping pods. Workers no longer just want to feel more comfortable at work. They are searching for deeper connection and greater representation.

To meet these demands, business leaders should consider the ways they can pour into their employees that go beyond the production. Quite simply, this means abandoning the 40-hour workweek for something more bespoke. Employees must be given clear expectations and allowed to contribute in ways that offer meaning and value. Rather than paying per hour or even a salary structure, employees are seeking to be treated like human beings with a life beyond the workplace. This means letting employees function in the ways that best allow them to meet those expectations.
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All of this is well and good, but there is a danger here as well. Executives will no doubt raise concerns over their organizations serving the employee, rather than the customer. They quite rationally may fear stagnation in the face of such a change in their structure. But there’s an answer to this.

Purpose and Partnership

When compensation begins to shift toward meeting expectations rather than “putting in your time,” the importance of common purpose rises to the surface. Gen Z and Millennials want to work for organizations who contribute to something they care about. When their purposes align, there is grit and incredible productivity to be found in this partnership. But it has to be exactly that – a partnership.

A partnership between leaders and followers around a common purpose has many benefits that are beyond the scope of this article. When it comes to compensation, the leader can now be afforded the opportunity to define the organizational goals the employee will commit to pursuing. The leader and follower can work together to define the expectations for the employee that serves this common purpose and the compensation that is equitable for their work.
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A partnership model opens the door to regular dialogue around how to compensate well while requiring impactful work. Simultaneously, mission and vision will be aligned with communal purpose and give the follower a greater stake in the organizational goals. This engagement can lead to greater commitment and a deeper sense of satisfaction in the workplace.

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What's Next?

It’s time to remove the need for standardized hours in the workplace. Sit down with your teams and determine the common goals and values of each employee are and drive a vision that allows them to fulfill their own. None of this works without common purpose. Then continue the conversation in ways that highlight a partnership around this purpose, one that demands quality work and rewards employees in kind.

The nature of compensation is changing. Instead of losing your best employees, why not start the conversation? Better yet, let’s talk about how DeGraaf Coaching LLC can work with you to create a team that thrives in this new environment. Contact us today for a free strategy call to learn how to make the most of your team and work.