Effective intergenerational employee compensation approaches

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By Anthony Halim | 02 November 2016

In 2016, corporate human resources (HR) departments encountered many new and more sophisticated challenges. At a global level, economic uncertainties, rapid technological advancement, and changing labor regulations called for exceptional labor adaptation skills. In Asia, at a regional level, the Association of Southeast Asian Nations (ASEAN) and the ASEAN Economic Community (AEC), which was introduced at the end of 2015, saw a drastic increase in talent mobility across and within its member countries. That mobility brings fierce competition among skilled labor in the ASEAN region. In such conditions, only the most competent and skillful HR approaches will prevail.

A shift in generations within the labor market, both regionally and globally, is also occurring. As older generations that used to be productive in the labor market make their way to retirement ages, they will be replaced by other generations. Different generations have different needs. In 2020, for the first time, five generations will be working together side by side within a company. Today, companies are both preparing and competing at the same time, attempting to manage the needs of these five different generations. Winning company strategies will emerge, ultimately attracting and retaining the best talent in the marketplace.

Given the above challenges, company HR departments are challenged to stay innovative when it comes to their strategic thinking. HR initiatives have to be visionary and futuristic even as their functions have to be “bulletproof.” Combining the two, it is expected that HR will be able to find and manage the right people, the right skills, and the right roles at the right time, right cost, and right location.

The Millennial generation, which is increasing in numbers in the labor market, is key in today’s labor market. This particular generation is under the spotlight of HR departments around the world, which is due to the unique characteristics it brings to the market compared with previous generations. This indicates that companies need to become more aware and more focused in attracting and managing this particular generation. Surveys have shown that the needs of Millennials are also unique and involve more than just pay.

Effective recruitment: Corporate business strategy and internal equity as well as competition

Business strategy needs to be aligned with HR strategy and ultimately employee compensation strategy. Internal equity is crucial because it is closely related to individual roles and responsibilities. Internal equity will evolve as the company grows in size and complexity. Some companies tend to find themselves in difficult situations when it comes to defining and providing internal equity.

In order to adapt to changes in the labor market, companies will also need to take a closer look at their competitors when it comes to compensation strategies. Employee compensation must remain competitive in attracting, retaining, and successfully engaging employees.

In October 2015, President Jokowi approved “Peraturan Pemerintah No. 78” in order to pursue the attainment of a decent living income for Indonesia's labor force. The regulation states that every company must have a formal salary structure. The new regulation also has other serious consequences for corporate policies, ranging from written warnings to permanent freezing of the business.

A formal salary structure helps organizations manage compensation by aligning pay with the competitive marketplace, recognizing the relative internal value of different jobs, and maintaining the cost-effectiveness of pay programs. It provides a framework for rewarding performance, making consistent pay decisions, and linking career paths and pay opportunities, and it can provide a framework for total compensation design and delivery.

Benefits are also an integral part of employee compensation. Benefits tend to be more difficult to communicate compared with other aspects of compensation. Some employees aren't even aware of some benefits until they see a need for them. Benefits types and variations tend to increase from year to year. A current benefits trend is in the area of personalized wellness. As an example, Milliman implemented the idea of personalized wellness via its 1 Billion Steps Program. This program allowed employees to record their own exercise and converted it into the equivalent of steps. There are many exercise choices for employees to choose from, ranging from brisk walking to vigorous weightlifting. There are also options and parameters to customize an individual's exercise or even add a new type of exercise not on the list.

Offering company benefits to fulfill employee needs is not easy. Companies often find themselves in dilemmas because there are differences between what employees seek in a benefit and what employers can offer. Flexible benefits elegantly help to address these gaps.

Flexible benefits introduce the concept of the flexible spending account (FSA), more typically known as an “employee wallet” or “employee piggy bank.” An FSA is personal to each employee and the amount set aside can be saved for future use or it can be spent sooner for buying benefits of choice.

Good HR strategy and functions are very important to cope with current business demands and dynamics. Effective, personalized, and needs-based compensation design will be key in the midst of fierce labor force competition, both regionally and globally.