Secrets of an Effective Millennial Pay Strategy

Most of us like to put things in nice, neat categories.  It makes life simpler because generalizations are easier to digest and accept.  However, when it comes to people, categories can be dangerous.  Just when we think we have a group “pegged,” someone does something out of the norm and ruins our model.  This is a particular problem when it comes to Millennial employees—a group that has been labeled perhaps more than any other in today’s workforceThose labels often come in the form of myths, which impact the way business leaders think about paying and managing this unique group of high-potential contributors.

A Millennial pay strategy must address the life and career stage of the employee.

Career Segments

One of the most common mistakes businesses make in trying to construct pay for Millennials is to treat them as one monolithic group—almost as if they were all the same person.  Data indicate that Millennials represent a diverse range of age, experience and ambition.  Trying to make assumptions about what "all Millennials" desire (or reject) in the realm of compensation and rewards, without an acknowledgement of those segments, is a recipe for disaster.  So, let’s consider the career groupings into which Millennials typically fit:

Launchers.  These are young professionals at the start of their careers. They have either just left the university or are within their first few years of graduating.  Your company is providing their initial or perhaps second career-related job.  Most of them are single.

Accelerators.  These are Millennials who have had some experience with more than one company and are now trying to settle in with an organization where they can rise in ability, recognition, contribution and influence.  Most in this group are probably still single but a growing number are married or have life partners and are starting families.

Catalysts.  These are individuals who are either entering or are well into their 30s, have gained meaningful experience and possess unique abilities.  They are able to affect significant (positive) change in an organization and companies are competing for their talents.  They may not be Jony Ive (from Apple), at least not yet, but they are still catalysts who could change the growth trajectory of your business.  As a result, they have leverage and are in a position to negotiate. These Millennials either want to put their talent to work in a business that has resources they can leverage to accomplish their ambitions or start a business of their own. More in this group are married (than in the previous two segments) and many of them have children.

As you look at each of those descriptions, it should become obvious that a "one size fits all" pay approach is not going to succeed when it comes to a value proposition for Millennials.  This does not necessarily mean you need to construct a different compensation strategy for each group, however. It simply suggests that the components of pay you offer, and the emphasis you give to each, will differ based on the life history and career trajectory of each group.  That is because those issues will inform how these employee segments will each evaluate what I'll call their “Hierarchy of Financial Needs” when it comes to pay and wealth accumulation opportunities.  Let’s examine what that means.

The “Hierarchy of Financial Needs”

Borrowing from Maslow's theory on human motivation, let’s consider how Millennials might prioritize their compensation-related needs based on the career category they fit in. We might graphically depict that hierarchy as follows: 

The importance of each level on the financial hierarchy of needs depends on the career stage of a millennial.

As the picture above illustrates, there is a range of financial needs that most people (not just Millennials) expect to be fulfilled through the financial partnership they have with their employer.  And different elements of pay are intended to address each level or type of need.  All of those reward components have value but the level of importance each has to Millennials depends largely on which career segment they belong to.

For example, Launchers are likely to be concerned with very basic standard of living issues as it relates to their annual salary and bonus while Accelerators are becoming more aware of where they stand relative to their peers.  Catalysts, on the other hand, certainly want a competitive salary and bonus but they are much more focused on long-term wealth creation opportunities through value sharing plans (stock, profit pool, phantom equity).  When it comes to a benefit plan, Launchers have minimal needs but Accelerators are starting to become more concerned about protecting their families—so the adequacy of things like health coverage have greater importance to them.  For Catalysts, having options is a key issue so they look for a plan that allows them flexibility in how they apply their benefit dollars.  They may prefer to secure a disability income replacement policy over a rich health plan because they’re concerned about protecting their financial environment.

The message here is that when you plan a pay strategy, you need to view your Millennial employees through the lens of their present life and career experience.  Think of them as you would a customer and study what they need your value proposition to solve for them.  In a sense, you need to approach pay design for millennials as you would a marketing strategy.  Identify your audience and the characteristics of their “persona.”  Determine what you want them to do—the outcomes you want them to own.  Then decide what they’ll need to believe before they’ll take ownership of those results—why those outcomes are meaningful, not just to company but to their personal and professional development.  Finally, determine what they need to know if they’re going to believe that—how the business model works and what their role is in it.  Then build a pay strategy that reinforces that “do, believe, know” sequence.

Too often millennial employees are viewed as a curse instead of a blessing.  The reality is, this part of the workforce tends to stay longer and remain more committed to the companies they work for than Gen X or Baby Boomers did.  This generation possesses unique talents and is one of the most educated in modern times.  They are looking for a partnership relationship with the right organization.  As a result, you should not short-change your efforts to build a millennial pay strategy that will attract, develop and retain the kind of talent you want.

To dive deeper into the subject of millennial pay, download our free e-Book: How to Pay Millennials.

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