Exploring Compensation and Benefits: How HR Can Create Competitive Packages

Sometimes the solutions to questions that seem to defy answers are staring us right in the face.

That can often be the case when it comes to trying to diagnose issues with recruitment and retention at your organisation.

Why you just can’t seem to attract the candidates that you need for particular roles, or why good employees seem to keep leaving your organisation, are perennial problems that seem to present themselves to employers every so often – with no easy answers.

Often though, taking a closer look at the compensation and benefits packages that your organisation offers can offer some solutions though. Why? Well, because the salary and the benefits that an employee receives in a role are often the most influential factors on whether they apply for a role, or whether they stay in one.

In this blog, we’ll be exploring these compensation and benefits packages in more detail, looking at how HR can create competitive packages that enhance organisational performance.

Compensation and benefits: where do we stand in the UK?

Ask most economists about wage growth in the UK and they’re all likely to tell you a similar thing: it’s lacklustre compared with other countries around the world. And it has been for a while.

Arguably, the majority of remuneration packages in the UK workplace for employees have fallen into this wage stagnation trap – prioritising short-term savings at the expense of long-term productivity.

The last few years have seen workers reach breaking point when it comes to stagnating wages, with 2022 and 2023 seeing a wave of employees across the economy demanding meaningful pay rises that matched the extraordinary rises in inflation.

The recent demand for higher wages and better remuneration isn’t hard to understand when you look at the data. Studies show that the rate of pay in the UK lags significantly behind that of other comparable countries and research suggests that its roots lead back to the 2008 Financial Crisis that crippled the global economy and has caused lasting damage to the UK economy.

A report by the Resolution Foundation found that in the run up to the 2008 Financial Crisis, on average, people in Germany were £500 better off than people in the UK. Fast forward 16 years after the 2008 Financial Crisis and that figure now sits at a staggering £4,000. The Resolution Foundation suggests that the main cause for this is a ‘toxic combination of low growth and high inequality’ which has left the most vulnerable households the most exposed to financial shocks.

With an estimated 8.1 million working age adults living (and working) in poverty – a round 20% of workers – it’s a given that you’ll have employees in your own workplace who are living in poverty and who are currently struggling with the cost of living.

Benefits of a strong remuneration and benefits package

So, why create a strong remuneration package in the first place?

The main reason is an obvious one – remuneration packages are one of the most effective ways that you can attract and retain candidates. They are one of the most powerful levers you have to distinguish your organisation from the competition.

After all, research suggests that they are a key motivator in whether or not an employee will choose to work for your company. The TUC found that over 30% of workers cited low pay as being one of the key reasons they would leave their role for another one.

How to create a competitive compensation and benefits package

Here are some of the most effective tips that you can use to create a compensation package that’s truly competitive.

1.    Understand the difference between compensation and benefits

It’s easy to let our brains go into a kind of shorthand when we’re thinking about remuneration packages at work. We can fall into the habit of lumping both compensation and benefits together, without really considering the fact that they are both separate items. These separate items are combined to form one comprehensive package but they are fundamentally different things, with different ways of appealing to potential candidates.

Essentially, compensation refers to the wages or salary that someone is paid to do a particular role. Benefits refer to any additional perks that are given to the employee on top of their wages or salary, like free gym memberships etc. One can’t stand in for the other if you want to create a package that’s truly effective.

Understanding the difference between the two is essential when it comes to creating a package that really appeals to candidates. This article by Indeed explores the similarities and differences between compensation and benefits here.

2.    Personalise benefits to individuals

In early 2024, as reported in HR Magazine, Tiger Recruitment carried out a HR roundtable event with leaders from the industry, discussing employee benefits and the associated challenges with getting them right.

A key theme of the chat was the increasing use of personalised benefits in compensation packages, where employees can choose their own benefits based on what appeals to them personally.

 This approach fits in with current trends in Western society which has seen a move towards the increasing personalisation of products and services.

For instance, a report by McKinsey examining consumer attitudes towards personalisation in the economy found that 71% of consumers expected some form of personal interaction from the companies that they use. It isn’t too much of a stretch to expect this trend to extend to the world of work too, with employees expecting a degree of choice when it comes to the benefits aspect of their remuneration.

A simple way to give employees agency over the benefits that they choose is to assemble a master list of benefits that you can offer and then let employees pick a certain number that they feel would be useful to them.

3.    Pay someone what they’re really worth

Remuneration is a tricky issue when it comes to creating a competitive benefits package.  As we live through a sustained cost of living crisis and relatively high levels of inflation, it’s clear that the employee demand for higher salaries isn’t going away. If organisations are serious about attracting and retaining the best talent, it might be time to level up salary rates to reflect that.

Of course, if you’re just an ordinary member of the HR department, then you might not have much sway to be able to influence the salaries that employees are paid. You will be able to use your professional expertise and experience to lobby senior management, or those stakeholders with the decision-making power, to adapt their approach.

As a professional with a specialist’s understanding of Human Resources and recruitment, senior management will often call on your expertise and feedback when it comes to deciding strategy. This gives you the potential to influence strategy and use your knowledge to help guide managers towards best practice. Whilst you won’t usually have the final say on the strategic direction of HR at an organisation, you will be able to influence where it goes through the expertise that you provide to other members of staff.

The Annual Hays Salary Guide is one of the most important tools at a HR professional’s disposal when it comes to finding out a rough idea of what someone should be paid. Covering all of the major industries and sectors in the UK economy, the Hays Salary Guide lists the average salaries for a specific year, for specific roles, in specific areas of the UK. It’s an incredibly useful resource to consult, giving you up to date information about the average industry salary for a particular role. This information can help guide your own HR strategy and enable you to find a remuneration rate that’s competitive.

4.    Find the right balance between compensation and benefits

At the risk of being blunt, it’s time that employers got realistic about the balance between compensation and benefits in a remuneration package – the key thing that influences whether or not an employee stays in a role (in most cases) is how much it pays.

Research confirms this, time and time again, with the level of remuneration regularly cited as the most important factor for most employees about a job. The reason behind this isn’t rocket science. Fancy gym memberships, pizza parties and free fruit bowls don’t pay mortgages, after all. Likewise, a half-day on Fridays won’t put food in the mouths of your family. We live in a world that demands money in order to survive, and employees expect to be able to earn that money to fulfill their basic needs.

Over the past few years, employers have tried to save costs when it comes to remuneration by padding out packages with more benefits, at the expense of a competitive salary or wage. Whilst, it can help an organisation save money in the short-term, in the long-term it can store up systemic problems, contributing to flatlining retention rates, poor morale and a ballooning recruitment budget. At the end of the day, if workers don’t earn enough money to survive, they’ll leave – costing your organisation.

As a result, finding the right balance between the additional, cheaper benefits that you offer your employees, and the rate that you actually pay them is crucial. Employers should be focusing on improving the attractiveness of the core remuneration that they offer, with benefits considered after this has been improved.

5.    Work in collaboration with a trade union or employee representation board

One of the strongest ways that you can create a competitive remuneration package is by consulting with employees, collectively. In practice, that usually means working closely with your workplace’s trade union or any employee representatives in your organisation.

Working in partnership with employers, trade unions and employee representation in your workplace gives employees a voice and allow you to understand exactly what your employees want collectively. As they cover particular sectors and industries, trade unions in particular can help you gain an understanding of the average rate of salaries in a particular industry and the type of benefits that employees may expect. This can help inform your own approach to building a competitive remuneration package.

A comprehensive package is usually competitive

We hope this blog has helped to develop your thinking about how to create a salary and benefits package that’s truly competitive in an ever-fierce recruitment and retention landscape. Finding the balance between salary and benefits can feel like a challenge but getting it right can enable your organisation to really enhance both its short term and it’s long term performance.

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