For An Empathetic People Strategy, Start With Compensation

Written by Lisa Wallace, Cofounder & Co-CEO Assemble

Compensation is the single most important component of the employee-employer relationship, and as such, should be the bedrock of an organization’s people strategy. Despite its central importance, it is common for even well-intentioned companies to let building a robust compensation program take a backseat to other initiatives. Doing so is dangerous. It weakens a company’s ability to attract and retain talent, especially diverse talent, and it hurts employees and the people who depend on them. As we head into a year of looming economic uncertainty, HR leaders intent on building effective and inclusive people strategies should begin with compensation first.

Other aspects of people strategy are important, but not central.

Management gurus often throw around adages suggesting that the number one reason people quit their jobs is due to something other than compensation, such as having a bad manager. The implication is that the work arrangement itself - compensation awarded in exchange for performance of a particular job - is less relevant to employees than more subjective and accessory factors such as management style and company communications. Despite the lack of conclusive evidence to support these claims, they are regularly repeated with good intentions, by groups focusing on building strong company cultures and safe environments for employees.

Focusing on the importance of the full employee experience, including management and culture, is a noble endeavor, and a crucial component of the role of People and HR teams. But in its most distilled form, an employment relationship is the performance of a particular job for a company, in exchange for consideration in the form of compensation. An entire body of employment law is built on this central fact, and for good reason. In a Pew Research study, fueled by inflation and the great resignation, 63% of employees cited low pay as a key reason they left a job in 2021. While other factors are important, it’s inaccurate to argue that compensation is not a primary driver for most employees.

It’a privilege to forget the importance of compensation.

“Luxury Beliefs'' are defined as ideas commonly held by the upper class that inflict costs on lower classes. Denial of the importance of compensation to employees by the management class, particularly the C-suite, is an example of a luxury belief. As ample research suggests, the primary people who say that “money doesn’t buy happiness” are the wealthy, not the middle class or the working class that comprise the average workforce. If you have the luxury of having enough money to eat, support yourselves and your dependents, and plan for the future, compensation may not be top of mind.

While this may be true for high-earning executives, this is not the experience of the average American worker, especially in light of inflation. 55% of Americans today feel that inflation is preventing them from saving enough money for retirement. And the problem is worse for diverse workers, who in addition to experiencing financial challenges, are also likely to suspect that they are underpaid, and with good reason due to a history of pay inequity.

A compensation-centered people strategy is an effective people strategy.

Inclusive and effective people strategies should foster a company culture that allows employees to bring their authentic selves to work. But compensation is what employees take with them home. Mass layoffs in tech, and the looming threat of an impending recession, have reminded us all just how much compensation matters, even to elite employees like highly-skilled software engineers and other white collar workers. This suggests that a compensation strategy matters even more during times of market uncertainty, whether driven by a recession, inflation, or both. This doesn’t mean that people leaders are obligated to give everyone a raise, in lieu of or in addition to perks. But it does mean that employers are wise to ensure that each employee is paid competitively with the market and with the company’s unique budget and goals.

Additionally, ensuring that companies are not only paying employees fairly, but also communicating employee rewards effectively is critical. Times are tough. Ensuring employees understand the logic behind their compensation and believe it is fair is the ultimate way to signal respect and empathy to your employees in a tough time, and is the single most important thing you can do to foster a diverse culture and avoid being boxed in as a “pizza party” HR leader.

Employee perks, manager development, and workplace fulfillment are all noble topics that companies should spend time on and be intentional about. But focusing too much on these items at the expense of compensation runs the risk of losing focus on your most urgent priorities when it comes to building an empathetic and inclusive people strategy.

If you want to support an employee’s full self, don’t fall into the trap of thinking that their well-being begins and ends in the office. If you want to lead with empathy in a downturn, remember that everyone’s mind is on their mortgage payment and ability to buy basic necessities, often before it’s on in-office people programs — or heaven forbid — an office happy hour.