Job candidate compensation and benefits are a motivating factor for job seekers as they evaluate job opportunities, as well as for employees as they decide whether to remain with an organization.
Recently, I wrote a post reflecting on content from the HR Indiana SHRM conference. This post builds upon that content by focusing on compensation and benefits as it relates to job candidate motivations. Let’s discuss some statistics and strategies that an organization can analyze in the quest to hire and retain talent.
Inflation Impacting Job Candidates
Inflation is soaring. As of June 2022, the United States is experiencing a 9.1% inflation rate. Nearly all goods and services are increasing for the consumer, and here are a few specific examples:
- Groceries up 12% YOY (year-over-year; largest increase since 1979)
- Chicken up 17.4% (largest increase EVER)
- Restaurants up 9% (largest increase EVER)
- Fuel Oil up 87% (largest increase since 2002)
- Electricity up 12% (largest increase since 2006)
- Rent up 5.4% (largest increase since 1987)
- Airfare up 33% (largest since 1980)
Federal and State Government Affairs Update, HR Indiana 2022
Employees are on edge as they seek to pay bills and save for retirement. According to Wilis Towers Watson research, the anticipated 2023 annual merit increase is approximately 4.1%. But even though wages are increasing, bigger increases in the price of goods and services has job seekers and the employed feeling the pressure. And as much as employers would like to reward and help current employees, pay raises will rarely surpass the current inflation rate. This dynamic is creating fierce competition among employers to retain and recruit talent, and meet their compensation needs.
How can employers create competitive rewards systems to compete for talent?
Creative Compensation and Benefits
According to the United States Labor Department, average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year. While increasing wages were meant as a competitive tool to attract and retain employees, rapid wage growth also contributes to the inflation rate. And wage gains have not kept pace with inflation. Private-sector wages and salaries declined 3.1% in the second quarter from a year earlier when accounting for inflation.
New employees are being hired at a higher pay rate than current employees due to market demand causing pay compression. Pay compression occurs when the pay of one or more employees is very close to the pay of more experienced employees in the same job, or even those in higher-level jobs, including managerial positions. To offset pay compression, HR departments are getting creative with their benefits offerings and diligently trying to increase salaries within and/or accentuating other compensation.
Three Main Areas of Compensation
Compensation can overlap into three main areas:
- Base Salary (Hourly Rate),
- Short Term Incentives (awards granted typically ≦ 1 year of employment), and
- Long Term Incentives (awards granted typically ≧ 1 year of employment).
HR must conduct market analyses on pay and incentives to ensure a competitive edge in the recruitment process. Prime Short Term Incentives include bonuses or variable pay. Variable pay is often known as “pay-for-performance”. Long Term Incentives include stock options and 401k (profit) / 403b (nonprofit) retirement plans. A high employer match rate to employee retirement plan contributions enriches the employee’s perception of the employer’s long-term commitment to the employee. During times of high inflation, giving smaller increases or larger bonuses more frequently can help reduce the pain of high inflation and demonstrate a sense of empathy towards employees.
Evaluating employees’ needs and wants are crucial to developing a solid benefits structure for an organization. Promote the organization’s culture and work/life compatibility, but also include more incentives such as:
- remote work and flex time,
- student loan repayment,
- scholarships for employees’ dependents,
- personal sabbaticals,
- phased retirement and professional development funds,
- onsite childcare,
- and petcare.
Be creative. Take an intrinsic look at your employee team, and collect feedback from them as to what they seek. If an organization can support the means to do so, explore a cafeteria-style benefits system. Employees can select the benefits that are the most essential to their well-being, resulting in more satisfied employees and an increased retention rate.
According to SHRM, pay equity is compensating employees the same when they perform the same or similar job duties while accounting for other factors such as experience level, job performance, and tenure with the employer. An organization that is effectively leading the way with pay equity amongst its employees will not have pay gaps based on any of EEO’s protected classifications.
To be a leader in pay equity, an organization needs to conduct pay equity audits to ensure that gaps do not exist among individuals performing parallel job duties. HR and senior management will need to review the existing compensation philosophy, revise as needed for equity and communicate the philosophy with openness and transparency to employees of all levels. Questions will arise among employees so encourage employees to discuss concerns and questions with HR directly.
Keep in mind that many states and local municipalities require the removal of salary history information from job applications as part of the “Ban the Box” movement to promote salary equity among individual groups. And even if a company is not subject to Ban the Box legislation, many companies proactively remove salary history questions from the application as an effort to reduce pay discrepancy.
According to Harvard Business Review, “pay transparency has positive impacts on employees’ perceptions of trust, fairness, and job satisfaction and has been found to boost individual task performance.” Many states have passed pay transparency laws where organizations are required to disclose salary ranges for job opportunities. And beyond legal requirements, job sites like Indeed are now providing salary estimates when employers choose not to disclose salary ranges along with their job posts.
Job Candidate Compensation and Benefits
While an employer cannot directly combat rising inflation and supply costs, HR can help lead the charge for competitive job candidate compensation and benefits that will help recruit and retain employees. Pay rate is not the sole deciding factor for an employee; benefits that are truly relevant to the employee’s personal and professional goals will impact employment decisions as well. Solicit feedback from employees, and evaluate their concerns and suggestions. Transparency and action will help build trust between employees and HR, and in the long-term, develop a true team atmosphere.