Magic Bullets to Thriving in the Midst of the Talent Shortage and “The Great Resignation”
Installment 1 – What’s Comp Got to Do with It?
An article contributed by Karen DiGioia of Herbein | Mosteller HR Solutions.
While it may feel like years, the Herbein | Mosteller HR Solutions’ Salary Budget Survey was conducted less than two short months ago. Technically, since it was 2021, I guess that could be considered a year ago, but I digress.
Detailed findings were provided to participants last month, and, at the highest level, confirmed what we already knew:
- Merit budgets are increasing – the steady 2.8% - 3.0% merit average that we’ve been comfortable with for so long is shifting upwards.
- While about a third of participating organizations reported a merit budget falling between 2% and 3%, the highest grouping for all levels of employees is 3% - 4%
- Around 10% - 12% of participants were in the 4% - 6% range
- Another 5% reported merit budgets of 9% or more.
Not sure about you but I haven’t seen a merit budget of 7% or more since the 1980s!
- Market adjustments are being used widely to supplement merit adjustments with additional budgets of anywhere from 1% to more than 10% in place for many participating organizations.
- Some organizations are also increasing variable pay opportunity for 2022. So, in addition to increasing base pay, variable pay opportunity is also on the increase at about a quarter to a third of organizations.
- 30% of participants report doing so for hourly positions
- In some cases, this involves the addition of a new variable pay component for hourly employees; in others, it reflects an increase in the amount of variable pay provided within an already existing program
- 23% of participants report increasing variable pay opportunity for executive and exempt
- As many organizations already have variable pay plans in place for their executive and exempt employees, this primarily reflects organizations increasing the amount that can be earned under an existing variable pay plan
- 30% of participants report doing so for hourly positions
So, what does all this mean? Organizations are investing (yes, I said “investing”) more in pay.
My word choice here is deliberate. When it comes to employees, too often we use the word “expense.” While it may seem like a matter of semantics, it’s an important distinction. If you need a new IT system, you invest in new hardware and software. If you’ve outgrown your facility, you invest in a new building. If business has slowed, you invest in marketing or sales consulting. But when it comes to your most critical resource – your human capital – we often talk about expense rather than investment. Let’s change that thinking. If you don’t make the investment in your employees to ensure that you have a solid foundation of competitive and equitable compensation, all those other investments – capital and otherwise - will be worthless. That powerful IT system, new building, or marketing campaign will have no value if you don’t have the human capital you need to maximize those investments and bring a return.
Wage inflation is real. Chet Mosteller, CEO of Herbein | Mosteller HR Solutions, recently coined the phrase the “compensation volcano” and I believe it tells the story well. Entry-level wages are growing at a pace that we’ve not seen for decades. This leads to tremendous (and costly) pressure from the bottom of organizations which, in turn, brings the challenge of wage compression and a need to keep a careful eye on internal equity. Add economic inflation, low unemployment, skill shortages, COVID epiphanies, reduced labor participation rates, increased entrepreneurial activity, Baby Boomer retirements, and more to the mix and we have a “perfect storm” of factors that are likely to keep us in this pattern for quite some time.
What should you do?
Many organizations are doing what I can only describe as throwing money at the problem. An example: A client called me earlier in 2021. Their board was panicking. They didn’t want to fall victim to The Great Resignation and wanted to give all employees a significant (really significant) mid-year increase. The client wanted to know my thoughts (and, if you’ve worked with me in the past, you know that I’ll give you my thoughts – even if you don’t ask for them…). I told my client that I was concerned about this approach. While I applauded the board in their willingness to invest in their employees, I urged them to take a more targeted approach. By giving everyone an across-the-board increase, they would be making an investment but not necessarily solving any problems. A better approach would be to take some time. Determine how their current salary structure and compensation levels, both base and total cash, compared to the market. Then they could invest that money in a manner that would get the best return. Allocate it toward their star performers and those employees who were currently being paid below market but performing well in their jobs. For those employees that were already paid competitively or others who were paid above market, no additional investment would be needed.
Bottom line – it’s absolutely appropriate to invest in compensation and ensure that you are paying your employees in a manner that is both competitive and equitable. But first, you need to take the time to look at how your compensation compares to the market. Figure out where your “problems” are before you try to fix them. Register for our upcoming webinar to hear about HR industry trends and outlook.
Late 2021 saw a significant uptick in our compensation work. Knowing that they couldn’t rely on Google searches and free online data to tell them what they needed to know, organizations turned to us to conduct formal compensation studies that would give them a true picture of what market competitive compensation looks like within their industry and their geography. We developed competitive compensation structures, analyzed employee pay, reviewed variable pay plans, and worked together with them to determine the investment, if any, necessary to bring them to a more competitive position with base and variable pay. Those organizations are now positioned to make investments that are appropriate, sound, and effective. A much better approach than just “throwing money at the problem.”
Starting from a foundation of competitive and equitable compensation is critical. But so is realization that comp’s not the only game in town. What else should your organization be doing to ensure that you are positioned to thrive in 2022 and beyond? Be on the lookout in the coming weeks for the next blog installment.
If your organization could benefit from a fresh look at your current compensation programs to determine how you compare to the market and ensure that you’re working from a foundation of competitive compensation, reach out to us at Herbein I Mosteller HR Solutions at info@herbein.com.
Article contributed by Karen DiGioia of Herbein | Mosteller HR Solutions.
