Four Drivers for Integrating Career & Pay Growth

In a fiercely competitive talent market characterized by increasing globalization, changing worker attitudes, and rampant skills gaps, companies face landmark workforce hurdles. To adapt, organizations must relinquish outdated labor paradigms that no longer work ­—or arguably never did.

One legacy practice poised for reinvention is the widespread separation of talent management and compensation strategies, which disconnect organizational goals from employee potential. The result? Inflexible compensation systems that fail to drive desired behaviors, incentivize employees fairly, and retain critical employees.

The Agility Advantage: Integrating Pay & Talent Strategies

Where did compensation go so wrong? Historically and largely still today, businesses rely on a rigid hierarchy based on tenure and experience to develop pay structures. This approach lacks adaptability and disregards individual skills and potential. It reinforces existing hierarchies and further obscures pay transparency.

To complicate matters, the Economic Policy Institute reports that CEO pay has grown by 1,460% since 1978. “In 2021, the ratio of CEO-to-typical-worker compensation was 399-to-1 under the realized measure of CEO pay; that is up from 366-to-1 in 2020 and a big increase from 20-to-1 in 1965 and 59-to-1 in 1989.” Yet, the average employee’s compensation has increased much slower, exacerbating the perception of inequity in pay.

Reimagined compensation frameworks represent more than a financial exchange. It signals a value shift for employers and employees.

To focus on the road ahead, companies need to tie talent management to their compensation approaches to reward skills and outcomes, not just tenure and experience. This new approach enables organizations to:

• Align employees with organizational goals and priorities.
• Tie skill development to increased pay.
• Invite and consider stakeholder collaboration.
• Create clear and equitable paths to pay progression.
• Foster company productivity and innovation.

As the second installment of Acera Partners’ series on talent retention, in this blog we unlock four drivers for integrating talent and compensation strategies to develop greater talent agility and break out of restrictive pay structures.

Driver #1: Break Down Detrimental Silos

One of the biggest inhibitors to an integrated compensation and talent strategy is the outmoded segmentation of talent management and compensation. In many organizations, decisions about talent management and pay are handled independently within the HR function. When talent management teams sit apart from compensation teams, it’s impossible to connect these critical levers in a way that helps drive employee performance and business outcomes.

Without an integrated strategy, HR is not presenting a compelling story to the CEO, who controls the budget purse strings for talent investment.

The issue is more than just a lack of integration. Within some organizations, talent management and compensation strategies actually work against one another, adversely impacting the business and its employees. As an example, if compensation teams are tied to a rigid pay structure that forces adherence to salary ranges based on job title alone, managers can face resistance when they propose paying more to recruit or reward people who bring highly competitive skills to the organization. This unwillingness to recognize and pay for skills that are worth more in the market, regardless of job title, leaves companies with less leverage to attract, retain and develop critical talent.

By unifying talent management and compensation processes, organizations eliminate inefficient silos and better align their recruiting, performance management, and skills development with salary packages. This comprehensive approach sends a clear message about what the company truly values and rewards.

Driver #2: Solve Skills Gaps to Stay Competitive

With the speed of digital transformation, the concept of “core competencies” is becoming obsolete. To keep pace with automation and other market disruptions, businesses must (1) know what skills their workforces currently have, (2) use data-driven predictions to direct future skill development, and (3) pay for skills, not just college degrees and years of tenure.

According to Deloitte, 75% of executives believe a skills-focused hiring approach “enhance[s] access to opportunities and foster[s] a more dynamic, innovative environment.” That also should be true in how we recognize, reward and advance people once they’ve joined the organization.

As today’s skills gap widens at rocket pace thanks to AI and technology innovation, the World Economic Forum recommends that enterprises join the rising skills economy by emphasizing key proficiencies over job titles. Considered a Forbes’ top HR trend for 2024, this skills focus lends flexibility to managers and recruiting teams searching for and promoting the best talent for their organizations.

This “skills shift” isn’t just good for companies. It helps employees stay competitive and invested in their career journeys, too. According to a 2023 BCG study, 68% of employees recognize coming skills disruptions and are willing to reskill to stay competitive.

While creating a skills economy is primarily a talent management process, integrating and leveraging compensation can accelerate a company’s skill advantage. By paying for reskilling and upskilling, organizations incentivize workforces to address market disruptors.

Creating a skills-learning pathway also gives employees more agency over their pay. According to Deloitte’s 2023 Global Human Capital Trend Report, giving team members more agency is a significant trend. Employee agency helps “organizations drive value and strengthen their relationship with workers by embracing rising worker influence,” Deloitte reports. As organizations give team members more influence over skills development tied to compensation, they empower employees to participate actively in their careers and pay growth.

Driver #3: Facilitate Internal Mobility & Growth

While most leaders acknowledge the benefits and cost savings of reskilling and promoting from within, only 15% of employees surveyed in LinkedIn’s 2023 Workplace Report said their companies encouraged them to make internal moves. In fact, according to Fuel50 research, 22% of workers surveyed were actively discouraged from making lateral job changes in their organizations.

To align compensation with talent management strategies, companies must capitalize on individual skills and equip workers to pursue flexible yet focused career paths. This means moving beyond development programs that focus on pulling employees up a traditional career ladder. Development needs to broaden employee skill sets to help the organization address market disruptions within their current roles.

This process turns the conventional career ladder on its side, opening doors for workers to move across teams and functions based on aptitude and skills. Making these adjustments:

• Provides direction for clear, strengths-based advancement. In a survey of over 500 companies, Bain and Company found that just 28% “communicated pathways for promotions and salary increases.” But employees are hungry for career growth opportunities. When workers clearly understand strengths-based career paths and compensation opportunities, they are willing to stay and grow with the organization.
• Reduces the cost and effort of external recruitment. Inviting employees to pursue internal job mobility saves companies the expense and time of recruiting externally for needed skills or onboarding new, untested candidates. Since replacing an exiting employee can cost two times a worker’s annual salary, this amounts to significant savings.

Driver #4: Cultivate Retention, Engagement, and Productivity

As financial pressures intensify for U.S. households, a Q4 2022 Employ Quarterly Insights Report revealed that the top reason a significant number of employees (37.1%) left their jobs was to pursue “more money.” According to Forbes, 57% of Americans say their pay increases lag behind inflation.

These fiscal woes aren’t easily left at home. A 2023 Bankrate survey found that over half (52%) of Americans believe money stress is the factor most negatively impacting their mental health. In January 2023, consulting firm PwC found that financially stressed workers are almost five times as likely to admit that personal finance problems distract them at work.

As organizations begin paying for skills rather than tenure, they create more tangible measures for career and compensation discussions. When we reward employees for their skills and strengths, they feel recognized and fairly compensated for their capabilities and are more likely to bring their whole selves (and full potential) to work.

A 2021 Indeed study on fair pay and salary transparency supports this idea. According to the research, 82% of employees felt more fulfilled by/engaged with their work when equitably compensated, and 81% reported feeling “more productive and loyal to their employers.”

When companies take a more holistic approach to their talent compensation systems, it doesn’t just foster an atmosphere of authenticity and productivity. It also ignites a creative spark. As team members feel valued and invested in their workplaces, they are likelier to pursue the learning, growth, and value creation that fosters discovery and innovation.

In contrast, companies with antiquated compensation approaches and unfair pay models suffer from poor morale and lower retention. Among respondents in the 2021 Indeed study, 56% said they felt “undervalued” by unfair pay practices. When some participants learned they were earning less than colleagues they perceived added less value to the organization, 54% reported a drop in motivation. Fifty-nine percent searched for new work opportunities within one year.

Failing to deviate from disjointed talent and pay strategies leads to worker dissatisfaction, high turnover, and diminished productivity.

In Summary

These significant drivers and talent trends call for businesses to develop adaptive practices that link organizational goals with people and pay strategies. This process begins with recognizing it takes more than salaries and bonuses to incentivize teams. A holistic talent strategy incorporates compensation with targeted skill development. This keeps the organization and employees competitive while inviting greater worker agency over career and pay growth.

To develop pay structures fit for the future of work, organizations must connect talent strategies to practical, equitable incentives for the workforce and the organizations to stay competitive in the face of great market disruption and volatility.

Bridging the Gap With Acera Partners

Helping businesses break down unproductive silos, Acera Partners collaborates with clients to build internal career and pay growth frameworks that increase engagement and retention. Together, we see what’s possible. For more information, check out our approach or get in touch today.