April 10, 2024

Justify your salaries: Attract top talent with competitive salaries

Dear salary. Still at the top of the list of reasons for joining a company. This is understandable, as the need for security is deeply rooted in us humans. Today we are looking specifically at the salaries of leaders and the question of how organisations can best deal with this.

Influence of Executive Leadership

Let's talk about the scale first, to ensure that the topic of pay is put into the right context. Because one thing should be clear: The impact of leaders on a company's bottom line cannot be overstated. As McKinsey points out in "The Mindsets and Practices of excellent CEOs", top leaders apply a number of specific methods and mindsets that significantly increase company success and shareholder value. To put it in figures: a CEO accounts for 45 percent of a company's performance.

These leaders understand the importance of management process coherence and ensure that the various departments and functions are closely aligned with the company's overarching strategic goals. By promoting effective coordination among leaders and aligning resource allocation with strategic priorities, they can drive execution and continuously refine strategy.

In addition, outstanding leaders emphasise effective board engagement and view it as a strategic asset rather than a mere duty. In doing so, they work with board members to develop the company's future beyond traditional fiduciary duties - leveraging the board's expertise to improve strategic decision-making and the company's resilience.

Last but not least, another important aspect of corporate governance is the focus on the long-term "why" of the company. According to McKinsey, excellent CEOs articulate and promote a corporate purpose that goes beyond profit-making and includes broader societal benefits. This approach not only minimises risks for customers and stakeholders, but also exploits new opportunities by aligning the company's business activities with its core mission and values.

Deloitte has also addressed this issue. Their findings on business performance emphasise the importance of strategic leadership. Effective leaders not only respond to current trends, but also anticipate future challenges and opportunities, ensuring that the organisation is well positioned to manage the complexities of the global marketplace. This proactive approach to leadership, combined with a deep understanding of the organisation's strategic position, enables companies to outperform their competitors and achieve sustainable growth.

In summary, the difference between good and exceptional executives can have a significant impact on a company's performance, touching on aspects of strategic management, stakeholder engagement, performance management practices, and the accurate assessment of the company's performance relative to its peers. 
It is therefore completely legitimate to pay top salaries here.

Role of Competitive Compensation

Hence, in the highly competitive landscape of talent acquisition, the importance of competitive compensation cannot be overstated. A comprehensive salary strategy is not just about attracting talent. Rather, it should signal that a company values its employees - a crucial role for employee retention and subsequently overall business success.

Pay goes beyond base salary and includes bonuses, benefits and other incentives that together link to an attractive package for potential and current employees. According to Salary.com, competitive compensation is not just about meeting market rates, but also taking a holistic view of what employees and executives value, such as health care, flexibility and work-life balance. This comprehensive compensation set is important not only to attract top talent, but also to foster a motivated and loyal workforce.

The research emphasises the importance of aligning remuneration practices with the company's strategic objectives in order to ultimately drive business success. A well-structured pay policy is a clear indicator of the organisation's priorities and its willingness to invest in the success and wellbeing of its employees. The transition from a purely competitive compensation package to a total rewards package shows that employee expectations are transforming and companies need to adapt to remain attractive employers.

In addition, attractive remuneration naturally plays a crucial role in employee morale and retention. Trinet points out that it is often more difficult to retain employees than to hire them. This shows how important a solid compensation strategy is to retain employees and reduce turnover. 

(Fig 1: Retaining Employees is harding then hiring them, Trinet)

After all, staff turnover (Fig 1.) or unfilled positions also cost companies considerable sums of money. The right mix of salary, benefits and perks can have a significant impact on employee satisfaction and contribute to a positive corporate culture. This is because employees feel valued and motivated - both of which are the cornerstones of employee engagement and a healthy corporate culture.

(Fig 2: Cost of Rehiring, Trinet)

Competitive remuneration is therefore an essential part of a company's talent management strategy. It affects not only the ability to attract top talent, but also the productivity, satisfaction and loyalty of employees. Outstanding companies are able to create a culture of excellence and commitment that supports their position in the market in the long term.

Importance of Salary Transparency

Salary transparency is increasingly becoming a hallmark of modern, forward-looking companies, whereas it used to be a taboo subject. It can be seen as a strategic element aimed not only at attracting top talent, but also at gaining the trust and commitment of existing employees. Transparent remuneration practices signalise that a company is committed to fairness and equality. This promotes a culture of openness that is in line with the values of an increasingly modernised workforce.

Recent studies underline the central role of salary transparency in the recruitment process. A study by LHH shows that 82% of job seekers are more likely to apply for a job if the salary range is stated, while 74% show less interest in job offers where this information is missing. Furthermore, 73% of candidates are more likely to trust companies that include salary ranges in their job adverts. This trust is not insignificant - it is the foundation for building long-term relationships between employers and employees. As in any relationship, trust is the beginning of everything.

And there are other benefits too: Striving for salary transparency not only helps attract talent, but also helps streamline the hiring process itself. By setting clear expectations from the outset, organisations can ensure that candidates going through the recruitment process find the proposed salary range acceptable. This level of openness helps to reduce potential misunderstandings and disappointments later on in the recruitment process, making it more efficient and effective.

Furthermore, salary transparency can serve to eliminate pay disparities and promote fairness in the workplace. By openly disclosing salary ranges, organisations are sending a clear message against discriminatory pay practices and promoting a more diverse and inclusive workforce.
And that's not all. As we noted in the previous section, top salaries are the best way to attract top talent - transparent salaries make it easy for high achievers to identify companies with such salaries.

In conclusion, the role of salary transparency in today's corporate landscape cannot be overstated. Not only does it improve the talent acquisition process by attracting more and better-suited candidates, but it also creates a foundation of trust and equity that promotes long-term employee retention and satisfaction. If companies want to meet the high demands of the modern labour market, salary transparency will undoubtedly be an important strategy to attract and retain top talent.

Benchmarking and Strategy Development

Benchmarking and strategy development are crucial in the remuneration of leaders. This ensures that organisations keep pay packages competitive and in line with both market standards and company objectives. Benchmarking includes a comprehensive analysis of salary trends in the industry - i.e. salaries of peers and the general economic context. This allows fair and attractive salaries to be set for leaders.

The first step in benchmarking, of course, is to collect and analyse salary data. This includes industry reports, salary surveys and financial reports from comparable companies. This data provides information on current salary trends and enables companies to adjust their salary structures accordingly. Knowing the average salary levels of CEOs and other top leaders in comparable industries has always been important for companies to set salaries that attract and retain talent over the competition.

Developing a compensation strategy is not just about setting competitive salaries. It's about putting together a holistic package: base salary, performance bonuses, long-term incentives, equity awards and other benefits. This strategy should align with the company's long-term goals, culture and values and encourage leaders to deliver performance that supports the strategic direction of the organisation. The compensation package should be structured to reward both short-term success and long-term growth and align the interests of leaders with those of shareholders and other stakeholders.

Transparency is also beneficial here - when determining remuneration packages and linking them to company performance, it can strengthen trust between leaders, employees and shareholders. Clear communication about the criteria and metrics used to assess performance and determine remuneration reinforces a culture of fairness and accountability.

Benchmarking and the strategic development of remuneration packages are therefore important processes that need to be carefully scrutinised and continuously adapted. By effectively using market data, aligning compensation with strategic goals and disclosing the compensation package, organisations can attract outstanding leaders.

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