As the economy continues its slow recovery, businesses must rethink their compensation strategy or risk losing their top talent -- and a significant competitive advantage.
According to a survey by Payscale's, a company that specializes in compensation data, 72 percent of respondents expect their financial situation to improve this year, and 60 percent cite retention of top-performing talent as a major concern during the economic rebound.
Payscale's 2014 Compensation Best Practices Report is based on data from more than 4,700 respondents representing human resources practitioners, as well as business line and executive managers. The report reveals that regardless of size and industry, talent retention has become a top priority for business leaders, says Tim Low, vice president of marketing at Payscale.
[Related: Tech workers seek larger salaries in 2014]
"Since the recession, we saw companies less worried about their compensation strategies or how they compared to the rest of the market, because they had the attitude that many people were just happy to have a job at all," Low says.
"With the economy improving, we're constantly reminding clients that their top talent could jump ship for better opportunities. There's a dawning realization that they have to do more to retain their talent than they have in the last few years. Compensation isn't the only factor, but if you don't get that right, other benefits and perks aren't as appealing," he says.
According to the survey, 88 percent of respondents said their organizations plan to give raises this year. Retaining top talent by doling out raises can help maintain a competitive advantage by keeping the best and brightest within your organization instead of losing them to competitors, Low said.
Improved Economy Brings Tech Talent Concerns
"While many of the economic indicators are encouraging, we also found companies are increasingly worried about retaining their top talent," says Low.
"More than ever, real-time market data on compensation has the ability to give businesses a competitive edge as they grapple with a more dynamic talent economy and employees who are looking for a bigger, better deal," he says.
[Related: Big Data Skills Pay Top Dollar]
It's trite, but true, Low says, that people are a business's most important asset, especially in fields like high-tech, and in creative fields. Identifying, rewarding and retaining those employees can help your bottom line, and deliver better bang for your buck, he says.
"People are your business -- it bears repeating. You need to focus on keeping those people that are really helping make your business successful," Low says. "Even within the constraints of a salary budget -- and every company has one -- you can be creative about how you allocate that. You know who's critical to your success, who's just doing 'OK,' and who's not pulling their weight, and you can reward performance without sacrificing fairness," he says.
[Related: Is an MBA Worthwhile or Worthless for Tech Pros?]
"The idea is that you should offer greater rewards to those who go above and beyond and who impact your company for the better. Equity still matters, yes, you need to pay attention to fairness and make sure you're adhering to the EEOC regulations, but more and more organizations are seeing positive results from this kind of approach," Low says.
In Lieu of Cash ...
If compensation increases aren't in your budget, there are ways to reward your talent that don't involve cold, hard cash. Offering flexible work schedules or the opportunity to telecommute can actually make employees more productive and more engaged with their work, can reduce attrition and increase employee satisfaction, according to research from Global Workplace Analytics.
"Just by showing you're willing to be flexible; that can go a long way," Low says. "All employees really value that flexibility and the freedom not to worry if they have to take their child to the doctor, or attend a school function without stressing about every twenty minutes they weren't at their desk," Low says. "Obviously this differs by industry and role; sometimes remote work isn't an option, and generational differences also come into play. Millenials, for instance, really value this type of work-anywhere, anytime option," he says.
The opportunity to perform "meaningful" work can also be a powerful motivation, he says. "This is becoming more and more important for employees," Low says. "This can mean anything that helps an employee make a difference not just in their life, but the ability to take on projects that impact the larger world, the environment, social issues," he says.
The full 2014 PayScale Compensation Best Practices Report is available for download or you can view an interactive report here.
Sharon Florentine covers IT careers and data center topics for CIO.com. Follow Sharon on Twitter @MyShar0na. Email her at sflorentine@cio.com Follow everything from CIO.com on Twitter @CIOonline and on Facebook.
Read more about careers in CIO's Careers Drilldown.