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Compensation Management for the MultiGenerational Workforce

More than one-fifth of workers in nine major industries said they were "not very satisfied" or "not at all satisfied" with their compensation and benefits packages.

February 1, 2007
Related Topics: Technology
KEYWORDS technology
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According to Hudson’s “2005 Compensation and Benefits Report”, more than one-fifth of workers in each of the nine major industries assessed said they were “not very satisfied” or “not at all satisfied” with their present compensation and benefits packages. What’s more, 58 percent of employees surveyed reported they would consider leaving their employer for higher pay. This probably does not surprise too many people, or at least it shouldn’t. Money continues to burn holes in the pockets of U.S. employees, and it is therefore a primary factor in determining whether a candidate will accept or decline a position.

Thus, one of the key questions in the war for talent will be: What options exist for organizations that can’t offer the highest pay to key personnel? Broadly speaking, the HR department needs to sell the total compensation package. Existing and future employees must understand absolutely everything a company has to offer.

As companies recruit top talent, they need to emphasize different things to different people. These items might ultimately make or break a deal with a prospective hire:

• Pay.
• Benefits.
• Training.
• Career development and personal growth.
• Paid time off.
• Work-life balance.

HR departments need to tailor compensation plans in order to successfully sell candidates on their companies. Organizations that take a closer look at what each employee really wants out of a job and can figure out how to make the candidate select or stay with the company will be effective recruiters, which will have a positive impact on their profitability.

Talkin’ ‘Bout Your Generation

Over the years, various kinds of social scientists have tried to shape age-based coteries called “generations” based on large-scale political, economic and cultural trends experienced during their formative years. The conventional wisdom is that the three primary generations in the workforce now break down as follows:

• Baby boomers (born between 1946 and 1964) are viewed as loyal and hardworking and also somewhat narcissistic. They’re expected to stay late and do whatever it takes to get the job done. They’re also concerned about their job titles: They want to know how to climb the corporate ladder and appreciate being recognized for their knowledge, loyalty and performance with promotions and more money.

• Generation X (1965-1979) is widely considered to be a mercurial group, one that is brilliant but cynical and occasionally underachieves. Although this “slacker” stereotype is not as prevalent as it was when the Gen Xers began to stream into the workforce nearly two decades ago, it’s still common to find productivity “experts” who claim Xers aren’t willing to work as hard as the baby boomers.

• Generation Y (1980-1999), which is also classified as the Millennial Generation, is thought to be somewhat spoiled but very ambitious. Many feel the “Y” is appropriate because of this generation’s tendency to ask employers, “Why (Y) should I?” There are two things that can be said that aren’t gross overgeneralizations, though: This group is the most technology-centric and ethnically diverse generation in U.S. history.

Classifying generations across national populations in terms of life experiences isn’t as easy as this overview might suggest. The cultural commonalities between two people who were born 15 to 20 years apart aren’t likely to be that numerous. One solid indicator of generational divides, though, is birth rates. Obviously, this was very high during the years of the baby boomers (the “boom” was, in fact, an explosion of children). However, it fell to very low levels during the late 1960s and throughout most of the 1970s, only to pick up again at the end of the latter decade. It then rose to near baby-boomer levels until the beginning of the 21st century.

When coming up with a compensation management strategy, it might initially help to understand differences in terms of generations, but don’t put too much stock into these categories. Instead, you should think of the workforce existing on an oldest employee-youngest employee spectrum, with certain trends skewing toward either extreme.

Income

Just about everyone ultimately is motivated by compensation, but this professional drive isn’t necessarily limited to the paycheck.

When determining pay arrangements, keep in mind that market base-pay structures, job responsibilities and the entire benefits package your company offers are factors for current and potential workers. Employees are smart enough to realize it is not just about pay. When evaluating an offer, some candidates might want to trade in the 60-hour workweek for a 40-hour one while accepting a lower salary. Job stress also can be a contributing factor. A less stressful environment and a flex-time commitment might be enough to sway a highly talented employee to come to work for you — even if it’s for less pay.

As you begin to examine your organization’s pay structure for various generations, consider that age can have an impact on employees’ priorities where compensation is concerned.

Baby boomers are more likely to want to be paid through a combination of salary and long-term savings and retirement options, whereas Generations X and Y probably prefer to receive immediate compensation for their contributions. Because of the dynamic changes they’ve seen in the business world, younger employees are cautious that they or the organization won’t be around long enough to reap the rewards of a pension plan or long-term savings options. They want a check and 401(k) match to make their own retirement-investment decisions.

Benefits

Benefits play a major role in the total compensation package. As health care costs continue to soar, many companies will be forced, if they have not already started, to require employees to pay a certain percentage of the premium each month. Organizations need to actively examine the benefit premiums other companies of similar size offer to stay competitive.

Voluntary benefits your organization offers tend to draw different crowds. According to a recent Society for Human Resource Management (SHRM) article, the top three voluntary benefits baby boomers purchased were disability coverage, life insurance and long-term care. Boomers are concerned about long-term care, as they have seen their parents go to assisted living or nursing homes. They want to make sure they are prepared for long-term care if the need arises.

Generation Xers tend to purchase both disability coverage and life insurance. They differ from baby boomers by opting to purchase individual home/auto/liability insurance instead of long-term care. This difference can be attributed to the lifestyle of each group. Gen Xers are not as worried about retirement. Their focus is on the American dream of new homes and automobiles. Studies are still being completed on the most attractive benefits to generation Y, but indicators show they are interested in similar benefits packages as Generation X.

It’s critical to have a robust benefits package that appeals to a multigenerational workforce.

Training

According to the SHRM 2004 Generational Difference survey, training appeals most to Generation Y. As part of the compensation package, HR should stress career development and training to Generation Y. They want to be able to do it all and are willing to take an active role to develop and refine their skills.

Gen Xers and baby boomers also are influenced by training and development — especially leadership training. When making the pitch, it’s important to stress your organization actively encourages its employees to enroll in its company-sponsored leadership courses.

Baby boomers indicate they have a desire to learn technology. They want to be able to keep up with Generations X and Y, so it might be important to sell them on technology training, too.

To close the communication gap between each generation, it might be necessary to offer a communications course. The course should address the views, opinions and communication styles of each generation and how to respect one another in the workplace. Additionally, initiating team-building activities and mentoring programs might help encourage workers of different generations to work together more harmoniously.

Career Development and Personal Growth

Gen Yers are most interested in advancing their skill sets. Members of this generation want to know you will coach them. They are more likely to value a company that puts them on a clearly defined career path. Even though pay is not a deal-breaker for them initially, earning potential still plays a role in whether to stay or switch employers.

Gen X values career development, too, but most members of this generation typically job hop every few years. Although they might not view themselves staying with an organization for an extended period of time, corporations could sway their behavior by offering career development and personal growth opportunities.

Many baby boomers feel they’ve reached the glass ceiling in their organizations. However, they are still interested in advancing their careers. If the right opportunity comes along, and they’ve been groomed for a position, they might opt not to retire and stay with an organization to fulfill their long-term career goals. Retaining these experienced workers and their knowledge will continue to be critical.

The bottom line: All generations are interested in career development and personal growth.

Paid Time Off


Studies indicate time off does not rank on the priority list of baby boomers. What these studies might not consider is that the baby boomer generation typically already is tenured and receives a substantial paid-time-off package compared with the other generations. Baby boomers tend to see four to five weeks per year of paid time off, while Generations X and Y only earn one to three weeks paid time off annually.

Generations X and Y value work-life balance and paid time the most, so companies need to be creative when offering them packages, while being sensitive to the baby boomer generation, which has rightfully earned time off. A way to resolve this issue is to offer employees the chance to purchase vacation time, while letting tenured employees sell vacation time. This might accommodate the paid-time-off needs of all generations.

Work-Life Balance

Gen X is the generation that devised the work-life-balance concept. Of course, most generations appreciate work-life balance, but Generations X and Y seem to thrive on it.

The first step to accommodating the lifestyle needs of the various generations is determining whether a job is truly a 9-to-5 position. Companies need to ask: Can the hours be flexible? Would a person be able to telecommute for this position?

Once this has been determined, different types of work schedules can accommodate this multigenerational need. To keep scheduling fair among all employees, schedule selection could be based on seniority. This has been effective in the airline industry and others with nontraditional work hours.

Outlook for Multigenerational Compensation


Popular thinking holds that members of Generation Y want fair pay, training opportunities that allow them to grow their careers and a flexible work schedule. Gen Xers desire work-life balance, immediate money (salary, 401(k) match) and plenty of vacation time. And baby boomers need benefit options for long-term care and want an admirable job title and responsibilities.

Yet, this framework’s biggest failing is that it doesn’t view the people in these groups as individuals. And compensation plans will have to deal with individual customization to remain competitive. You can look at the workforce as a whole and see that older workers want respect and recognition in the form of titles and pay raises. Given where most of them are in their careers, this shouldn’t be too surprising. Conversely, when you see that more often than not, younger workers want to have more time away from the office, it isn’t hard to understand. They’re young, and they want to be out enjoying this time of their lives.

There’s a danger in forming any compensation strategies around generational categories because individual priorities will change over time, and there will always be exceptions.

Throughout the entire process, it’s important to tie performance to compensation, the form of which should be shaped by individual employees’ priorities. Organizations should consider all alternatives to compensating their workers for a job well-done — not just increasing pay, particularly when another method might be just as effective or even better. As the battle for talent continues to build across the business landscape, the organization that can accommodate the needs of all individuals might be the one that can keep and recruit the best of the best.

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