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Innovative approaches to success: Focus on modern compensation systems

27/07/2023 2020/02

Attractive incentive systems in the fight against the shortage of skilled workers

The relationship between employers and employees has changed fundamentally in recent years: Today, well-qualified professionals have the opportunity to choose the most attractive one between different employers

According to a survey by Randstad Germany on the topic of New Work, job security is a decisive factor in the choice of employer for almost 70 percent of the approximately 4,000 respondents. Also of great importance are an attractive salary and social benefits, which were named by 67 percent of respondents, and a pleasant working atmosphere, which is highly relevant for 63 percent of respondents. These findings underscore the importance of safety and well-being at work as key motivators for employees and illustrate that companies that take these aspects into account can enjoy greater attractiveness as employers. The results of the studies also show that more and more value is being placed on flexible working time models, the option of a home office and meaningful tasks.

Introduction to modern compensation systems

Traditional vs. modern compensation systems

Traditional compensation systems are often based on standardized salary structures that offer little flexibility and do not always take into account employees' individual needs. Modern compensation systems, on the other hand, go beyond these rigid approaches and offer the advantage of customized compensation that is tailored to each employee's specific skills and contributions. By tailoring compensation to the individual's needs and goals, they are more motivated and encouraged to do their best.

Success factors of modern compensation systems

Various types of compensation systems aim to motivate employees for their work. Essentially, a distinction is made between performance-related, social and performance-related pay. While performance-related pay is based on quantitative (hours worked) and qualitative (work results) performance, social pay also takes into account factors such as the age, number of children and length of service of colleagues. Performance-based compensation involves the employee in the company's development, for example by issuing shares or paying a company bonus.

Modern compensation systems can be assigned to each of these three types. However, there are considerable differences between the various compensation methods. The most common compensation models include:

  • Time wage: Fixed payment per unit of time worked (hour, day, week, month).
  • Time wage with performance bonus: Payment of bonuses for quality, quantity, punctuality, overtime, etc.
  • Time wage: Addition of performance-based variable pay to time-based pay.
  • Salary with variable component: combination of salary and performance-related bonus. The bonus can depend on the general company performance or the performance of the individual employee.
  • Proactive salary increase: Regular increase in fixed salary based on a defined formula.
  • Free choice of remuneration: The employee himself sets a salary that he feels is commensurate with his performance.

Not all of these compensation systems are widespread. Free choice of remuneration, for example, is a comparatively new model for which extensive empirical data are not yet available. The payment of a salary with a variable component, on the other hand, is widespread and is used primarily for more highly qualified employees as an incentive to improve performance. From the employer's point of view, it is important to agree on a clear set of objectives.

Target agreement and procedure

The main purpose of variable compensation systems is to convey corporate strategies and objectives. In order to be able to measure the success of an employee or the company, the weighting of various criteria is decisive in addition to the setting of targets. These are to be determined by the executives. As usual, qualitative and quantitative goals are differentiated from each other. This is done in a ratio of 30:70. It is important to note that corporate goals are not to be equated with work tasks.
The reason for this is simply the different contribution that each employee can make individually due to the different job and field of activity. Do not formulate elaborate annual goals, but clearly communicate and distribute tasks to the workforce. Then determine the results by evaluating an actual/actual or planned/actual comparison.

Challenges in implementing modern compensation systems

Implementing modern compensation systems can present some challenges. One of the main challenges is managing employee expectations and ensuring that compensation systems are fair and transparent. Companies must also ensure that their compensation systems comply with applicable laws and regulations. In addition, implementing modern compensation systems can take time and resources, as they may require adjustments to existing HR systems. It is important to recognize these challenges and take appropriate action to ensure successful implementation.

Non-monetary incentives for employees

The attitude of employees towards entitlements has been changing for years. Salary still plays an important role. However, aspects such as flexibility, the balance between family and work or leisure time are about to replace the company car as a status symbol. Soft factors such as pure appreciation for work also represent motivating incentives for employees. Among the non-monetary incentives, these factors are particularly common:

  • Appreciation: The appreciation of one's own work is decisive for job satisfaction.
  • Work-Life-Balance: The generation of the "Millenials" is characterized by the fact that self-fulfillment, leisure time and social contact are highly valued.
  • Range of tasks: The more interesting and varied the tasks are, the more satisfied employees will be.
  • Transparency: Companies create incentives, in particular for management decisions, if they communicate them transparently and openly. This strengthens the "we-feel| ing" and the team spirit.
  • Family friendliness: Extending the lunch break to pick up the daughter from daycare, working from home on Fridays or even taking the child to the office. Family friendliness is an important non-monetary incentive for employees.

Trend development at company level and practical insight

The shortage of skilled workers on the one hand and the changing expectations of employees on the other hand have led to a need for companies to rethink their compensation and career systems. In the battle for qualified specialists, more and more companies are moving away from purely monetary incentive systems.

For employees, salary is still the decisive factor in choosing an employer. Compensation systems with variable, performance-related components have become increasingly important, especially in management positions.

But: Non-monetary incentives such as family friendliness, flexibility and work-life balance are also taken for granted by employees today. In terms of career systems, it is evident that the trend is moving away from power-driven career ladders or "chimney careers" towards performance-based careers and team careers.

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