Balancing compensation in a competitive labor market

Balancing compensation in a competitive labor market

The labor market has changed. Where you used to be able to attract talent with a good salary, you now need to offer much more. At the same time, your budget is under pressure and you can’t endlessly compete in the salary race. For HR professionals, this means a complex puzzle: how do you remain competitive without putting your organization in financial trouble?

The reality is that compensation has become more than just a number on a payslip. Employees look at the total picture, while organizations struggle with budgetary constraints and internal equity. The challenge lies in finding a balance that works for both sides.

Why traditional compensation strategies no longer work

Many organizations remain stuck in an outdated mindset where compensation equals salary. They benchmark their wages against the market, increase where necessary, and think they’re done. But this approach misses the core of what modern employees are looking for.

The tightness in the labor market has shifted the power dynamics. Talent has choice and uses it too. A competitor offering ten percent more salary doesn’t automatically win if your organization has a better total package. But then you need to have strategically designed that total package.

Additionally, inflation plays a major role. When purchasing power declines, employees feel it directly in their wallet. Salary increases that don’t keep up with inflation feel like going backwards, even if the nominal amount rises. This creates tension that goes beyond just the salary itself.

From salary to total rewards

The shift to total rewards is not an HR trend but a necessity. It’s about the total package of financial and non-financial rewards that an employee receives. Think of development opportunities, flexibility, wellbeing, recognition, and secondary employment conditions.

Successful organizations make these elements explicit and measurable. They communicate clearly what the total package is worth and why. An employee who receives a training budget of €3,000, has flexible working hours, and access to a comprehensive wellbeing program receives much more value than the base salary alone suggests.

What’s interesting is that not every element costs the same amount. Flexibility in working hours or location costs the organization relatively little but has enormous value for employees. Development opportunities increase your costs but simultaneously strengthen your organization. This makes total rewards strategically interesting: you can add value without proportionally increasing your labor costs.

Data-driven compensation decisions

Good compensation policy starts with good data. Market benchmarking is essential, but continuously and in detail. It’s not about an annual salary round where you briefly check what the competitor pays. You need real-time insight into what different roles are worth in your sector and region.

Internal equity is at least as important as external competitiveness. Employees accept that others earn more, but only if there’s a clear rationale behind it. Equal work must be equally rewarded, not only from a fairness perspective but also from a legal perspective. The principle of equal pay for equal work is enshrined in legislation and is being enforced increasingly strictly.

Platforms like Deepler help organizations gain this insight. By systematically collecting and analyzing employee feedback, you see not only what employees think of their compensation but also which elements of the total package are most valued. This data makes your compensation strategy more effective and efficient.

Transparency as a strategic instrument

Transparency about rewards is a sensitive topic, but more and more organizations are embracing it. Not by making all salaries public, but by being clear about the structure, criteria, and bandwidth. This openness builds trust and reduces speculation.

When employees understand how rewards are determined, they accept differences better. They see what they can do to grow and what that means for their compensation. This turns compensation into a development tool instead of a source of frustration.

Transparency does require solid justification. You must be able to explain why roles have certain valuations and how you ensure external competitiveness. This forces you as an organization to have your compensation policy sharp and apply it consistently.

Flexibility and personalization

Not everyone values the same employment conditions equally. A young professional without children has different priorities than an experienced employee with a family. Yet many organizations offer standard packages that are the same for everyone.

Flexible employment conditions give employees choices within a certain budget. One person chooses more vacation days, another a higher training budget or a lease car. This personalization increases the perceived value without extra costs, because people get what they really want.

Compensation hours are a practical example of this. Employees who structurally work more than contractually build up hours that they can later take as time off. This provides flexibility on both sides: the organization has capacity when needed, employees get autonomy over their time.

The role of development and growth

Development opportunities have become an increasingly important part of the compensation package. Employees want to invest in their future and seek organizations that make this possible. Training, coaching, education, and career development are concrete forms of compensation with long-term value.

The beauty is that this investment yields mutual benefit. Your organization becomes stronger through better-educated employees, while they increase their market value. This creates a positive spiral where growth and development are central.

Deepler supports organizations in measuring development needs and monitoring growth opportunities. By periodically surveying what employees need, you can align your development offering with actual needs instead of assumptions.

Wellbeing as a compensation element

Psychological safety, workload, and wellbeing are not soft factors but hard compensation elements. Employees who feel safe, are not overloaded, and have room for recovery perform better and stay longer. This makes wellbeing a strategic investment.

Concrete wellbeing programs can range from mental health support to sports facilities, from flexible working hours to sabbaticals. It’s about showing as an organization that you see employees as people, not just as workers.

Measuring wellbeing and workload provides insight into where interventions are needed. Deepler’s quick employee surveys make it possible to continuously keep a finger on the pulse without overburdening employees with long questionnaires. This way you can adjust in time before problems escalate.

Implementation in practice

A balanced compensation strategy requires a phased approach. Start by mapping your current situation: what do you offer now, how competitive are you, and what do employees think of it. This baseline gives direction to your next steps.

Then define what total rewards means for your organization. Which elements do you want to offer and why? How does this relate to your culture and strategy? Make this concrete and measurable, so you can monitor whether it works.

Communication is crucial with any change in compensation. Explain why you make certain choices, what it means for employees, and how it contributes to organizational goals. Involve employees in the design where possible; this increases support and effectiveness.

Continuously monitor whether your compensation strategy has the desired effect. Are employees staying? Can you attract talent? Do people feel valued? These insights help you adjust where necessary and prevent you from being stuck with policy that no longer works.

From cost to investment

The mindshift that’s needed goes from compensation as a cost item to compensation as an investment. Every euro you spend on rewards must create value: for employees and for the organization. This dual value creation is where the balance lies.

Organizations that understand this make different choices. They invest in development because it strengthens talent. They offer flexibility because it increases productivity. They provide wellbeing because it reduces absenteeism and increases engagement. Every element of the compensation package has a strategic rationale.

This requires an integrated view where HR, finance, and management work together. Compensation is not an HR thing but a strategic lever that affects the entire organization. The data and insights you collect must therefore be accessible and usable for all stakeholders.

The next step

Balancing compensation in a competitive labor market is complex, but not impossible. It requires strategic thinking, solid data, and the courage to look differently at what rewards mean. Organizations that do this well have a clear advantage in the battle for talent.

Start by gathering insight into what your employees truly value. Which elements of your current package work, and where are the opportunities? This data forms the basis for a compensation strategy that truly has impact.

Deepler’s platform helps you collect these insights quickly and reliably, so you can make decisions based on facts instead of assumptions.