While many of us continue to think of Millennials as the young whippersnappers of the office, the oldest of them are now 35 (and, no, this is no April Fools’ joke!). This may come as something of a shock—even setting aside the issue of how old this makes the rest of us feel. It also means that Millennials are rapidly moving into key leadership positions.
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For this reason, understanding what motivates them—and how to pay them in comparison to other generations—becomes even more important. With a fixed compensation budget, you need to know how best to direct your dollars where they will give you the most bang for your compensation buck, so to speak.
Payscale recently released a report, Compensation Challenges for a Multi-Generational Workforce, which provides some helpful insights in this area.
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Customized Tiers Are Crucial, Expert Says
Mykkah Herner, Payscale’s Head of Expert Services and one of the report’s authors, contends that strong compensation plans are tiered, with pay philosophy providing a solid foundation for the other tiers.
Upon the foundation is base pay, followed by variable pay, and topped off with individualized rewards and recognition. No matter the size of the overall compensation budget, companies are wise to consider the way they allocate the budget among these tiers, Herner suggests.
In contrast to Baby Boomers and Generation Xers—who often desire work/life balance and value stability—Millennials are willing to put a greater percentage of their pay at risk, in exchange for strong upside potential. They also value the environment at work, which the report suggests should lead companies to give attention to the branding of their workplace as a means of attracting and retaining these younger workers.
The generations also react differently to differing means of communicating about pay. In fact, they are nearly polar opposites when it comes to the amount of information they want others to have about their pay.
The older generations tend to keep pay information very private, while the younger group—who were raised in an age when every piece of information is easily accessible online—are OK with sharing it. Striking a balance is important in order to avoid alienating either end of the spectrum, according to Payscale.
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5 Actions You Can Take to Meet Generational Needs
To develop an effective pay plan that can meet the needs of each generation, Payscale suggests the following five actions:
- Identify and quantify which generations are prominent in your workforce. Think about how that may change in the future, and try to anticipate the generational makeup of your workforce 5 years from now. “Some predictions show nearly half of the workforce will [comprise] Millennials in 5 years,” Herner says. “By understanding what your workforce looks like today and is likely to look like in 5 years, employers can establish a forward-thinking, strategic head start on defining a compensation strategy that will carry their business into the future.
“We’re no longer in a situation where employers can sit passively with the belief their employees will remain at the organization for decades to come. The Millennial generation is a new kind of worker that demands a new kind of employer—one that is both responsible and proactive.”
- Assess your current compensation mix and how well it aligns (or doesn’t) with your workforce. Remember that it may not necessarily be tied just to generational differences; the mix of pay that works best for the various segments of your population may have just as much to do with function than strictly generations.
“What types of compensation does your organization currently use to pay employees?” Herner suggests asking. “Perhaps more importantly, how competent are you in putting together the right compensation mix for your workforce?” Millennials are good at grasping the big picture. For them it’s not about fixed costs like base pay. Rather, they seek opportunities for “potential pay,” a win-win for employers and employees alike.
Tune in tomorrow for the remaining three actions Herner recommends for intergenerational compensation success, along with an introduction to Sage HRMS’s free white paper, Career Development Planning and the Changing Workforce.