Compensation Administration, Compensation Planning

How the New Workforce Is Changing Incentive Compensation

Millennials employees are no longer a novel concept. As Scott T. Rollin notes in the Minneapolis Star Tribune, they’ve begun to move into middle management and other key employee roles. Coupled with employers’ worries about hiring and retaining qualified workers, the result is a mounting concern about how to compensate key Millennials.

Not surprisingly, the traditional methods of long-term incentive compensation often don’t fit well with younger employees who are much less likely than their predecessors to hang around for 30 years and reap the benefits at retirement.

Yet, employers still need to create long-term value and tie that creation to key employee compensation. Rollins highlights some trends that are developing in response to this gap:

  • “Long-term” being defined to include “off-ramps,” or partial payouts during the life cycle of the compensation plan;
  • A variety of options for paying key employees (for example, paying incentive compensation over several years to help pay for college education or a lump sum to help make a down payment on a home); and
  • The inclusion of qualitative factors in the plan formula that determines the ultimate payout.

The idea is to match Millennials’ needs for flexibility and current rewards with employers’ overarching goal of keeping important employees linked to growth in business value.