there are four different generations in the workforce

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There are four different generations in the workforce today, each with different philosophies and ideals. As of now, we have the Traditionalists, the Baby Boomers, Generation X, and Generation Y (the Millennials) all working together within the same companies. If keeping up with the needs and desires of all didn’t already feel like rocket science, there is another still to come into the workforce within the next few years, generation Z. Unfortunately, there is no one-size-fits all strategy when it comes to figuring out a compensation plan that works for all employees. Each generation has their own defining characteristics, demographics, and priorities.

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The big challenge for organizations today is to determine how to best reward their whole population when that population has become increasingly segmented. Although these workforce population segments are not limited to generation alone, for the purposes of this white paper we will be focusing on generational differences and their impact on compensation.

Before delving into further discussion we will first start off by defining who belongs to each of these generations. Once we have a clear picture of this, we will move on to a discussion about the impacts and challenges of the skills gap between generations. Finally, we will discuss how to appropriately attract, retain, and motivate each of the different generations.



DEFINING THE GENERATIONSYou would be surprised to know that most executives guess wrong when asked how old the oldest workers are in each generation. It is fair to say that most people don’t know who is included in each generation off the top of their head. For one, the oldest Generation X workers are now 50 and the oldest Generation Y workers are already 34. So perhaps the first challenge in dealing with generational differences is figuring out what age ranges fall under each generation. The Traditionalists are mostly retired, and if not then they are very close, so the oldest generation we will focus on is the Baby Boomers. Let’s take a look at the characteristics that define each generation.

The Baby Boomers are presently 51 to 68 years old, and this generation is estimated to be about 78 million people in size in the United States. Defining characteristics of the Baby Boomer generation include individuality, loyalty, and a career oriented mindset. In terms of their approach to compensation, these traits mean that the Baby Boomers are still mostly private about compensation and tend to have longer average tenures. At this point, most have served a full career often within the same organization, and are now focused on retirement.

In comparison, those in Generation X are between 35 and 50 years old. In the U.S. this generation is made up of about 35 to 40 million people, which makes them a much smaller generation than their predecessors by about half. Those in Generation X tend to be entrepreneurial, self-reliant, and globally minded. In terms of compensation, Generation X tends to be somewhat private with their compensation information. They have modest average tenures, sticking with one company through a promotion or two before moving on, and are focused on gaining or succeeding in management roles as well as having work life balance, especially to raise their families. Both in terms of size and their placement relative to the Baby Boomers and Generation Y, those in Generation X are stuck in the middle of the workplace right now.

Finally, those in Generation Y are from 19 to 34 years of age. Generation Y is even larger than the Baby Boomer generation, comprising between 80 and 90 million people. Generation Y tends to be group oriented, idealistic, and socially conscious. Often Millennials want to work for companies that are smaller in size and where they can feel the impact they make on the world. In terms of compensation, those in Generation Y are often quite public about their compensation information, they have much shorter tenures, and are often focused on career advancement. Additionally Generation Y consists of go-getters, who highly value flexibility.


BabyBoomers1946-1964

Gen Xand Busters

1965-1983

Gen Y andMillenials1984-2002

Communication about comp:



Average Tenure: Average Tenure: Average Tenure:

Career Mindset: Career Mindset: Career Mindset:

15+ years

5+years

1.5-2years

Mostly Private

Somewhat Private

public

RetirementWork/lifebalance

ManagementWork/lifebalance

go-gettersadvancementflexibility


Skillsets also tend to differ by and define each generation. In PayScale’s research about generations at work (http://www.payscale.com/data-packages/generations-at-work/jobs), we identified some key differences in skills held by each generation. For example Baby Boomers had much broader skill sets, for example bereavement counseling, occupational health, and gynecology. When we look at Generation X, we see some more detailed technical skills come into play, and by the time we get to Generation Y or the Millennials, we see much more social media-oriented skill sets needed. In comparing the skillsets, one of the other interesting things to note is that the skillsets typically held by Millennials are much quicker to learn and master than those held by the Boomers.

BoomersRPGLEYounger generations may not evven know what RPGLE is (it’s an older computer language), but Baby Boomers are 4.40 times more likely to list it as a skill.

Rank SkillMedian Pay

(Bachelor’s Degree Only)Relative Ratio

1 RPGLE $72,800 4.40

2 Diabetes Educator $62,400 4.25

3 JCL $90,600 4.21

4 Utilization Review (UR) $70,800 4.05

5Bereavement Counseling

$43,300 3.96

6 Hospice Care $60,200 3.81

7 Gynecology $75,800 3.61

8 Occupational Health $71,900 3.37

9 Plant Maintenance $76,700 3.28

10Fossil Fuel Energy / Fossil Fuel Power

$114,700 3.14


http://www.payscale.com/data-packages/generations-at-work/jobs


Gen XEnterprise SolutionsOf course Gen Xers are 4.04 times more likely to be pros at using technology to drive profit - they invented startups during the first dot com boom.



1 - tieService Oriented

Architecture$123,800 4.04

1 - tie Enterprise Solutions $128,700 4.04

3 Storage Management $99,000 3.95

4 Software Architecture $128,100 3.51

5UNIX Network Administration

$105,700 3.45

6Software Development

Management$139,600 3.23

7 RDMS $65,000 3.08

8ETL (Extract, transform,

load)$100,300 3.07

9 Cloud Computing $127,700 3.06

10 Citrix MetaFrame $75,200 3.04



Gen YPress ReleasesThey’re using social media all the time anyway, so is it really a surprise that Gen Y is 7.85 times more likely to be able to get the word out about your brand?



1 Press Releases $35,500 7.83

2 Blogging $37,300 6.66

3 SPSS $45,100 5.97

4 Matlab $60,300 5.95

5 Chinese, Mandarin Language $40,500 5.79

6 Social Media Optimization $38,900 5.46

7 Django $62,200 5.10

8 Wordpress $40,900 4.33

9 Social Media Marketing $37,900 4.14

10 Email Marketing $39,400 4.05

Another interesting thing to look at has to do with pay by generation. We can see that Millennials have lower overall pay right now while Gen X and Boomers are much closer together. This may have to do with years of experience and life stage.

Boomers

Gen X

Gen Y

Thousands of Dollars

$56,400

$55,100

$40,700

0 100

Median Pay



CONNECTIONS TO THE SKILLS GAP

One critical trend that we are seeing in relation to generational differences is a skills gap. What is a skills

gap? A skills gap occurs when employers perceive that there are no viable candidates, due to a lack of

available skillsets, for their open positions. Often this is measured when organizations report having an

open position for 6 months or longer, especially during a time when a lot of US workers are unemployed.

According to PayScale’s 2014 Compensation Best Practices Report, half of all companies report having a

skills gap. In the information, media, and telecommunications industries, this rises to two-thirds.

Additionally, large companies have the hardest time filling IT jobs while small companies have the hardest

time filling sales jobs. This makes a certain amount of sense, as large tech companies in IT are typically

looking for Generation Y employees who are less likely to want to work for large companies. On the other

hand salespeople are drawn to jobs with high pay potential which small companies may or may not be

able to provide in terms of salary and commissions.

Another aspect of the skills gap has to do with generational size. The Baby Boomer generation is much

larger than the Generation X and Generation Y is about twice the size of Generation X. This means that

as Baby Boomers are finally beginning to retire, Generation X employees are moving into management

positions at those organizations. That being said, there are not enough Generation X workers to fill

the leadership roles being vacated by the Baby Boomer generation. As a result of this, employers are

attempting to fill these roles with Millennials, but there is yet another skills gap here because Generation Y

employees are not ready to fill leadership roles.

On the other hand some people do believe that the skills gap may be a myth. In an article entitled “The

Skills Gap Myth,” Roger Bybee suggested that the skills gap is actually a good story told by companies

and politicians. Wages are currently dropping rather than rising; the implication is that if employers are

genuinely seeking to attract or retain top talent wages should be rising not dropping. Additionally, overtime

hours have dropped by 12.8% since 2000 which suggests that there may not actually be a skills gap in



some areas, as once previously thought. Furthermore, the number of workers who are overqualified for their positions is high, for example, there is a large number of bartenders and retail clerks possessing a Bachelors or even a Masters degree.

Ultimately, whether the skills gap is real or created, the fact of the matter is that there are open positions in organizations, and organizations are struggling to fill those positions. Who is impacted? The following table shows which positions are typically tough-to-fill positions, shown by company size.

The “other” category includes STEM jobs, which means Science, Technology, Engineering, and Math. This includes finance, medical specialists, maintenance workers, machinists, and truck drivers. Many industries are reporting an overall skills gap; some of these include oil and gas exploration, mining, information, media, telecommunications, and manufacturing. The skills gap has been felt by organizations of all sizes, however it is more likely that positions will remain open for six months or more in large or medium-sized companies.

So what are some of the generational impacts? The first impact we can identify has to do with machinists and other skilled labor positions. In the past, these positions were often recruited to companies and stayed

TOUGH TO FILL POSITIONS BY COMPANY SIZE45%

40%

35%

30%

25%

20%

15%

10%

5%

0%MANAGEMENT IT CUSTOMER

SERVICESALES OTHER

SMALL COMPANIES MEDIUM COMPANIES LARGE COMPANIES

16%

22% 22%

15%17%

26%

5% 5%

10%

14%

9%

17%

43%38%

43%



there for life but Generation Y workers are not as likely to remain in jobs for life, or even in organizations for life. This creates a gap due to the increase in competition among organizations to attract skilled laborers to their roles. As Boomers and Generation X skilled laborers are moving on to either higher-level roles or retirement, Generation Y workers are not moving into skilled labor roles. This has consequently led to a shortage of skilled laborers.

A similar trend that is occuring has to do with STEM positions. What is happening here is that jobs are opening up in increasingly technical roles but lower level employees do not have the technical expertise they need to be able to fill these roles. Employers might want to identify the need for increasingly technical roles and begin to train employees to be able to fulfill these roles. In some cases this may mean investing in current staff and taking a leap of faith.

Other skills gaps may be present in areas where there are obsolete skills. For example some hospitals or clinics are still using paper medical records systems but have moved to EMR systems. The hospitals and clinics using paper medical records may find that it is challenging to find and attract qualified employees with the skills needed for medical records systems. Because Generation Y candidates are much more likely to be trained in EMR systems. Ideally, organizations should modernize their systems and processes, thus better utilizing the skills of the newer generations.



GENERATIONAL PRIORITIES FOR COMPENSATION

Each generation in the workforce has a different set of goals and priorities. You will need to take these goals and priorities into consideration when designing your compensation plan.

Compensation mixStrong compensation plans are tiered. The base tier covers the organizational philosophy, strategy, benefits, etc. The next tier up contains the basic base pay plan. The third tier consists of the variable pay plan. The top tier includes the individualized rewards and recognition, which may or may not be monetary. The mix of pay refers to how you allocate your spending across each of these tiers.

Baby Boomers are focused more on retirement and have more interest in fixed pay, benefits, and work-life balance to engage their grandkids or to travel. Generation X workers tend to also be focused on both work-life balance and having a pay plan that is more stable or fixed, suggesting a higher proportion

of base to variable pay. Alternatively, the Millennial generation is focused on career progression, and is willing to have a higher proportion of pay at risk, or in variable pay. Additionally, Millennials are more interested in having a fun work environment, suggesting that organizations should use the branding of their workplace as an attraction and retention tool.



Communicating about compensationNot only does each generation have certain compensation needs, but there are also generational differences when it comes to their preferred style of communication about compensation. As previously discussed, The Baby Boomer and even Traditionalist generations are less public and more private, with their compensation information. It is unusual for them to disclose their salaries to their peers, their friends, or their running partners.

Millennials are quite the opposite, and are much more willing to be open about their compensation information. This can be attributed to having grown up with information readily accessible on the Internet where not much is kept private. The key to collaborating with multiple generations in the workforce is to find the right level of transparency that will work for the majority of your employees. This is not to say that your organization should be as transparent as possible and post salaries all over the internet if your employees are mostly Millennial. Rather, your organization should determine the appropriate level of transparency, depending on the population of their workforce, the culture of their workplace, the culture of the industry, and other factors. Once you have determined the appropriate level of transparency, it is important to be consistent about it.

Above all else when planning for multiple generations in the workforce is to make sure that the compensation strategies you come up with will help your company to retain top talent.

2012 2013

49%49% 59%59%

2014

59%57%

2010 20112009

28%28% 20%20% 47%47%

Concerns about retentionhave doubled since 2009



Since the official end of the recession, concerns about retention have risen from 28% to over 50%. In a

workforce that is becoming increasingly competitive, what is the best way to retain top employees? The

answer will differ depending on the generational makeup of the company. Generation Y, is not just looking

for financial compensation, but also the opportunity for career progression and pay. For Generation X,

retention can be achieved through providing leadership and management roles, incorporating succession

planning, and providing meaningful work. When it comes to the Baby Boomers, the primary goal isn’t

necessarily retention, but creating a smooth plan for retirement.

Compensation structures need to be designed with generational differences in mind. In the past, it was

common to do broadbanding, but that is no longer a practical strategy for the newer generations in the

workforce. Millennials expect to have a career path, and not just that, but one that moves pretty swiftly.

Organizations would quickly break the bank if they used the old broadband strategy. Let’s take an

Administrative Assistant role for example. In the past, workers were quite happy to have a broadband for

the position because the expectation was that, as long as they were continuing to get increases from year

to year to year, they would be happy to stay in the same role for a long time. Because Millennials expect

to move from position to position, organizations are now breaking out that Administrative Assistant role

into an Administrative Assistant I, Administrative Assistant II, and an Administrative Assistant III.

Each of these roles now has a range associated with it that is not nearly as broad as the former

broadband; however when put together all three band ranges may be as wide as the original broadband.

In this way, Millennials are able to be rewarded for gaining new knowledge and are more satisfied by quick

movements through positions, while at the same time organizations aren’t overpaying for their talent.



WHERE TO STARTSo what are some immediate things you might want to do?

1. First, start by identifying and quantifying which generations are prominent in your workforce.

Consider whether this is likely to change in the near or more distant future. What will the

generational breakdown look like for your organization in 5 years?

2. Assess your current compensation mix. Does it align with your workforce? Your compensation

mix may not necessarily be tied just to generational differences. The mix of pay that works best

for the various segments of your population may have just as much to do with function than strictly

generations

3. Review your open positions and identify what skills are needed for those jobs. Are those skills

trainable? Is there someone internally you might be able to fill that position with adequate training?

4. Also, consider which of your Baby Boomers may be retiring in the short or long term. Do you have

identified folks in Generation X or in your millennial population who may be groomed for those

leadership roles?

5. Finally, consider beginning a conversation with your executives about how transparent you would

like to be with your pay plan in the organization

They say that each generation thinks the generation that follows has it easy. They often think the newer

generation acts entitled, expects more, and gives less than they did. Each generation faults the next

generation for not having to put up with what they did to get to their spot in life. That may be true, but so

what? Generations do have their characteristics. Understanding what those characteristics are and how to

use that information to your advantage both in defining a compensation plan and managing appropriately.



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About PayScaleCreator of the largest database of individual compensation profiles in the world containing 40 million salary profiles, PayScale, Inc. provides an immediate and precise snapshot of current market salaries to employees and employers through its online tools and software. PayScale’s products are powered by innovative search and query algorithms that dynamically acquire, analyze and aggregate compensation information for millions of individuals in real time. Publisher of the quarterly PayScale Index™, PayScale’s subscription software products for employers include PayScale MarketRate™, PayScale Insight™, and PayScale Insight Expert™. Among PayScale’s 3,000 corporate customers are organizations small and large across industries including Zendesk, Miele, Keen, H&M and Clemson University.




there are four different generations in the workforce

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