Compensation Planning for Millennials

April 9, 2018

In just two years, half of the workforce will be millennials. By 2025, three quarters will be millennials. What are you doing to ensure your rewards programs are aligning to the expectations of millennials in the workplace, in order to attract and retain the best talent?


By 2020, half of the workforce will be millennials.1 By 2025, three quarters will be millennials.
Defined as the generation born between 1981 and 1996, there’s no doubt about it, millennials
will comprise a significant portion of the workforce in just a few years.

This is a highly educated segment of the population compared to previous generations. At the
same time, it represents a challenge for many organizations in terms of traditional staffing models.
While millennials have characteristics in common with other generations that have entered the
workforce in earlier times, there are important differences in what they value compared to
previous generations2, who are still in the workforce.

The stakes are high in our environment of complexity, uncertainty and volatility. The failure to
attract and retain top talent has been identified as one of today’s top risks for organizations.3
While balancing the needs of a multi-generational workforce should continue to be top of mind,
what does the need to attract and retain millennials mean for your organization in terms of rewards?
What should you be doing differently? How well prepared is your organization for addressing the
challenges of millennial talent?

This article will describe three key work expectations of millennials — fulfillment, flexibility and fun — and more importantly, explore what organizations can do to ensure their rewards programs are
aligning to the expectations of millennials in the workplace.

The failure to attract and retain top talent has been identified as one of today’s top risks for organizations.

Millennials' Expectations for the Workplace

They seek fulfillment in multiple, meaningful ways

Millennials seek work that is stimulating, meaningful, empowering, and that offers career and development opportunities.4 In looking for these kinds of experiences, millennials tend to appreciate unconventional career paths and different work experiences more than other generations.

And millennials want to be promoted — more quickly than any other generation.5 In fact, 68% expect to be promoted in two years and almost 90% in five years. But these aren’t necessarily traditional promotions. They don’t want to stick with a specific career path. What’s more, 45% of millennials will quit their job if they don’t see a career path that they think they’ll find fulfilling.6

They also have twice the expectation about pay that boomers do in terms of salary increases.7
Millennials expect twice as much in merit increases, so in terms of a 3% pay increase budget,
on average they’re expecting twice that.

While millennials have many reasons for leaving their jobs, it’s easy to see that some are more
important than others. One of the most important reasons they start looking for a new job is the
desire for more engaging work. If they have to go somewhere else to find it, they’ll do it.

They seek flexibility across the board

This generation appreciates a sense of freedom at the workplace. In general, this means work-life balance, use of technology, and on-demand work.8 This is what flexibility looks like to a millennial.

This is also reflected in a desire for free agency. They’re interested in part-time employment, on demand work, freelancing, the gig economy and other ways to give themselves more flexibility and

Relatedly, the traditionally inflexible vertical career — rising in vertical grades and across career
paths (support, individual contributor, management and executive) — does not match the
aspirations of this generation.

For millennials, if a new position offers more of what they are looking for in terms of experience,
a lateral or even an apparent “demotion” may be just the right move.

They want work to be fun and social

Social connectedness matters greatly to millennials. Millennials seek an engaging and convivial place to work. For starters, fun and working with good people are vital.10 There are, however, other implications of valuing connection. This generation puts a lot of stake in honesty, authenticity and a clear vision of the organization.

While the like to collaborate, millennials are also the most competitive generation ever.11 When it
comes to working on a team, they want to outperform everyone else on that team. They want to
differentiate themselves. “How do I perform against everybody else in my group? Am I the best?
What makes me the best? Was I best last week?” This way of thinking can challenge some
performance management channels, as well as some managers.

Implications for Rewards Programs

Since millennials seek work experiences that are meaningful, enjoyable and full of opportunities,
it is important to consider how you are approaching these aspects as part of your compensation
. There are some key areas to consider when planning rewards for this generation.

Offer flexible career progression

We know an unconventional progression path suits millennials if it helps them get what they want out of work. The traditional vertical progression model won’t work with this new generation, since it doesn’t meet their expectations for progression, movement and enrichment.

Consider taking an unconventional approach if it enhances engagement, but remember to be
consistent with overall organizational needs. This can be an excellent way for employees to explore
new challenges, develop skill sets, and contribute in new ways to the organization. Also consider
the benefits of a more compressed, flatter approach to hierarchy in order to better enable this kind
of unconventional movement.

Employee development needs to take this into account. Cross-training, collaboration between
teams and flexibility in terms of assessing talent are a few ways to help millennials explore different
areas. It’s critical to identify and create interesting work opportunities for this generation. That
could mean reducing the bureaucracy that makes it difficult for someone to move around the
organization, or taking special care to place millennials with managers from whom they can learn.

Appropriate reward structures are needed, of course, to accommodate this kind of job movement
and career flexibility.

Reward relative performance

Millennials measure themselves — including their performance at work — against their peers and expect to be recognized for superior performance. This makes a variable pay mix ideal for millennials.12 The base salary provides a foundation to access opportunity and variable pay provides a way to recognize those who make the most of the opportunity. In fact, directing rewards toward the top performers has been shown to be effective with millennials. For example, a merit budget with increased differentiation for top performers.

Also look at how a combination of individual and organizational incentives can work. The lower
you go in the organization the more an employee’s reward should be based on his or her individual
performance, because that’s where their line of sight is. On the other hand, for those higher in the
organization, more of their rewards their rewards should be based on organizational outcomes and
less on individual performance.

Provide connection and transparency

Constant connection through technology, especially social media, comes naturally to millennials. But this also means that online collaboration may be more attractive than face-to-face discussions. Frequent and brief virtual meetings can help reinforce connectedness.

For this generation, education and training must be clearly linked to opportunities in the
organization. Taking courses to cross them off a list won’t suffice. Similarly, all reward programs
should be structured so that they’re easy to understand and, even if goals are not easy to achieve.
That way it is clear what exactly is required in order to earn rewards.

One aspect of valuing transparency and honesty is that millennials often share information that other generations have considered extremely personal. For example, they are likely to let others know what they earn, as well as how much they receive in any pay increase. If it is perceived as unfair, this can have major repercussions. An entire group of employees could even leave over this. This is good reason to think carefully about how decisions may be perceived and, if necessary, defended.

Offer flexible scheduling

Consider variations on the usual work hours, including breaking up the day into two segments: the workday segment and the night work-at-home, or virtual work segment. Millennials want to attend meetings virtually. In fact, they’d prefer to collaborate online. Many organizations are not set up like that and are not altogether comfortable with it. Making changes in this area is imperative.

Give frequent feedback

In addition to rewards, frequent feedback is key. In fact, 43% of millennials want feedback every week, more than twice the percentage of every other generation.13 Look at ways to make every conversation an opportunity for concrete, transparent, actionable feedback. These digital natives have grown up not only communicating through technology, but feeling it’s an integral part of their daily life. Consider, then, how you can use texting, internal social media platforms and gamification to provide feedback practically anytime, anywhere.

There are different ways that providing frequent feedback can be addressed. An organization
can approach it through structured feedback touchpoints, ongoing feedback channels, or some
combination of the two. Since millennials expect feedback channels that are interactive and
supportive in real-time, performance management systems will have to play catch-up in this area.

Degree of differentiation

We mentioned earlier, millennials are competitive, so it’s important to structure rewards that reflect this. This means driving top performance by reinforcing it with rewards. Organizations will want to move away from spreading the merit increase budget up and down, including to those who didn’t meet expectations, as well as to those who exceeded them. Instead, consider the advantages of being much more aggressive in channeling rewards to those who really provide the strongest contributions.

Special Recognition

It’s vital to millennials to feel that their work is making a difference. The annual performance review is not nearly enough to reinforce this and to build upon it. Frequent one-on-one meetings, opportunities for employees to assess and share internally their accomplishments are important ways to make review and feedback ongoing concerns. Look for ways to be aware of employee performance on a daily basis, so that you can give feedback at the right time and the right place — as soon as possible.

When it’s time for special recognition, be assured that millennials appreciate it, especially when
it’s simple, personalized and immediate. To appeal to them, you’ll want to go beyond traditional
recognition programs, which have often been fairly generic in how they’re designed and in the
specific rewards. And be creative. For example, a handwritten thank-you note, tickets to an event,
or a “thank you” can be very powerful. Or consider giving some time off so they can participate
in something personally important to them. After all, that’s what it’s all about for them.

See the chart on the next page for the ways that millennials prefer to be recognized for
special accomplishments.


Millennials are already the future of the workforce. It’s critical to keep in mind that addressing the
needs and wants of millennials will call for conversations and collaboration with colleagues in human
resources, talent, training, and other areas of your organization.

Remember, it’s not just a paycheck to millennials, it’s a purpose. It’s not just job satisfaction, it’s development. It’s not just having good bosses, it’s getting coached. It’s not just having annual reviews, it’s having ongoing conversations. It’s not just a job, it’s their life. They don’t see the separation.

Key Takeaways

  1. Understand the values important to millennials - Compared to previous generations, they're different in what drives them - fulfillment, flexibility and fun. 
  2. See how these values relate to many facets of the work environment - What's important to millennials should be important to you, as their values affect compensation and related aspects of life at work.
  3. Look for specific ways to integrate them in your planning - You can improve satisfaction for millennials while also driving greater success for your organization. 

1 Aon Hewitt 2015 Health Care Survey
2 Corporate Executive Board
3 Aon’s Global Risk Management Survey 2017

4 Aon Hewitt Workforce Mindset™ Study 2016
5 Corporate Executive Board
6 Corporate Executive Board
7 Levit and Licing, 2011 in Rikleen, ND
8, January 19, 2017
9 Source: Corporate Executive Board

10 Aon Hewitt Workforce Mindset™ Study 2016
11 Corporate Executive Board

12 Aon Hewitt Survey—U.S. Salary Increases 1980–2016

13 Ultimate Software

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