Many businesses make the mistake of treating compensation as a cost, which they can minimize to increase efficiency. What they don’t realize is that the compensation package they offer to job candidates plays an important role in attracting top talent to their roster of employees, and keeping them from leaving the company and moving in with one of their competitors. In effect, compensation should be treated as an investment that contributes a lot to the company’s bottom line.
What is Just Compensation?
Compensation is not just about the hourly wages or monthly salaries you’re paying your people, and the fringe benefits that go with it. It consists of the following:
Direct Compensation is typically made up of salary payments and health-related benefits. Direct compensation that is in line with or above industry standards provides employees with the assurance that they are getting paid fairly. This helps the employer avoid the costly loss of trained staff to a competitor. Conversely, if you are offering a package below market standards – your top talent will quickly figure it out and go somewhere they are properly rewarded for their efforts.
Indirect Compensation focuses on the personal motivations of each person to work. Even though salary is important, people are most productive in jobs where they share the company’s values and priorities. These benefits can include “perks”, such as staff development courses, tuition reimbursement, subsidized day care, the opportunity for promotion or transfer within the company, bonus programs, public recognition, the ability to effect change in the workplace, and service to others.
Just compensation should be enough to cover much of the employee’s basic expenses and savings, and still have enough left for some extra perks.
What’s the Going Rate in Outsourcing?
The opportunity to work for a company like Costco is an attractive lure in itself. But, what if the company is an outsourcing service provider operating in another country? How much should you pay? And, how attractive should you make your compensation package? Isn’t the reason you’re outsourcing is to reduce your costs?
Skilled workers in the Philippines or India are increasingly being paid above average market rates. These countries saw an influx of imported goods sold at shopping malls. There’s a flurry of construction projects for new restaurants, coffee shops, and high-rise condominiums. And, there’s an increase in spending for luxury items and travel among millennials who are the majority of employees in outsourcing companies.
The costs of living in places where BPO and KPO companies have set up shop may have increased, but they’re still lower compared to costs of living in the United States. While the federal minimum wage remains at $7.25 per hour in the United States, a minimum rate of $5.00 per hour for outsourcing workers is still higher than the average rate for office workers in the Philippines which is P10,000 each month. Add the chance of moving up the ranks, and you’ll be attracting the cream of the crop.
Why Pay Above the Going Rate?
Aside from attracting the best people to hire, a good compensation package also serves to increase motivation and productivity among your employees. Companies like Costco, In-N-Out Burger, H-E-B, and Wegmans prove that a generous compensation and benefits package can make a difference.
People are more productive when they are paid above the market rate.
An employee making more than the market rate, after all, is likely to work harder and show greater loyalty. Workers who see opportunities to get promoted have an incentive not to mess up, compared with people who feel they are in a dead-end job. A person has more incentive to work hard, even when the boss isn’t watching, when the job pays better than what you could make down the street.
As mentioned before, compensation that pays for the employee’s standard benefits and extra perks can go a long way. It’s a way to combat dissatisfaction at work, absenteeism, and tardiness. The money also helps pay for the medical and dental needs of an employee and his or her family.
Different Compensation Rates in Outsourcing
Outsourcing companies don’t pay the same salaries to their employees. Workers who are assigned to the night shift receive an additional 10% or more for working from 10 PM to 6 AM. Top performers receive bonuses, which are either in the form of money or some equivalent good or service.
Companies in the Philippines, however, almost always pay a standard rate for all employees with the same position. This is what “equal pay for equal work” means. Employees also receive the same benefits as everyone else. None of those benefits should be eliminated or discontinued when they’ve been provided for a long time and consistently given to all employees.
Many companies reward their employees based on how much their skills and quality of work have improved over time. This pay-for-proficiency method ties the market value of a job to the employee’s set of skills. Outsourcing companies may also pay higher rates for jobs that are difficult to fill. These jobs usually demand higher skills and even post-graduate degrees.