Human Capital & Careers

Alternative Compensation Surges to the Forefront

With consumers remaining conservative and wages thus stagnant, companies employ other types of pay to keep workers happy.
David McCannAugust 7, 2015
Alternative Compensation Surges to the Forefront

While wage growth remains at a historically low level, companies are getting comfortable with alternative forms of compensation, like quarterly or monthly bonuses tied to individual, department, or company performance metrics.

In a recent survey of 114 corporate executives by search firm Korn Ferry, 97% of respondents agreed with the statement, “Alternative forms of compensation are increasingly important to remaining competitive.”

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Asked whether they believed that alternative compensation — which Korn Ferry defines as also including “spot” bonuses, enhanced benefits, and extra time off — would resonate with employees, 79% of survey participants said “yes.”

And 43% of those surveyed said they are increasingly building alternative compensation into executive pay packages.

15Aug_WageReplacements_v2“Salary increases used to be a pretty big part of life, but that has been diminishing quite significantly,” says Gary Burnison, CEO of Korn Ferry. “It’s not because employers don’t want to pay people a fair wage for a fair day’s work. The reality is that there is nothing they really can do on the pricing side, because there’s no inflation. And growth is really elusive, with everything getting ‘Uber-ized’ — digitizing your business so you can push it out to more people at a [lower] price point.”

Add those factors together, and “there’s a real hesitancy to lock into a higher fixed [wage] base that will be there forever,” Burnison says.

Not that Korn Ferry itself is resisting the notion of “Uber-ization.” Burnison notes that companies today are forced to disrupt their own businesses, “because if you don’t, someone else is going to. That’s the orientation I have, because there’s no other way. You just don’t have conspicuous consumers fueling your top-line anymore. Look at the price of crude oil — it’s dropped 50%, and it hasn’t even translated into the economy yet. It’s mind-boggling.”

Korn Ferry has been increasing the portion of employees’ pay that is variable in nature; at present, it’s up to 25% to 28%, the CEO says. The company also gave its workers seven extra days off this year around holidays, which Burnison says went over extremely well. “With all the things you do as a CEO, sometimes you expect responses and you don’t get them. But that gift of time has gotten more response than anything I’ve ever done,” he says.

The great unanswered (and unsettling) question is whether wage stagnation and conservative consumerism are here for good. Presently it appears that the former is the more vibrant trend, with the economy improving slightly better than wages. But we’re clearly in the midst of broad, fundamental changes in the labor arena.

“You can’t argue the facts,” says Burnison. “The labor participation rate in the United States is 63%, the lowest since President Carter; 75% of people say they’re going to work past age 65; and 25% of college graduates are underemployed. You have to ask yourself what’s going on. Why is that? There have to be some underlying reasons at play that are more than just [after-effects of] the Great Recession.”