By Stephane L. Smith, SPHR, SHRM-SCP
With all the current disruption in the workforce, it is important to be aware of the latest trends
so your firm or organization can stay at the forefront of change. While managers and executives know what is happening day-to-day in their businesses, many are unaware of the larger forces at play in the labor market.
It is
important for employers to recognize and adapt to emerging human resource (HR) dynamics since people are the greatest asset of any business. Right now, compensation is the focus for many HR professionals. Prospective employees are demanding higher
salaries than ever before. Allocating space in the budget for the increased pay rates of the current market should be a top priority for accounting and finance departments. But it is not that simple. As companies respond by increasing the pay for
newly listed positions to remain competitive, those employees who have been with the company for some time may now make less than those without as much experience.
Higher Pay Expectations
Those executives and managers who don’t work closely with their HR team often have no idea what fair salaries are right now. They can get caught off guard by the going pay rate. Maintaining an open line of communication with the HR department will
help ensure that you are properly building your budget to accommodate the new salary rates.
Also, you may want to start thinking about inducements. Are you prepared to offer sign-on bonuses? What about bonuses after six months if the employee achieves certain objectives?
If your organization isn’t forthcoming with
enticing offers, you could end up being left behind. Eighty-one percent of employers are offering sign-on bonuses and 65% are using retention bonuses to keep talent.1 There doesn’t look to be any end in sight to this trend either.
This has been the new normal for the past two years, and it seems as if it may be sticking around.
Once a compensation bar is set, it is difficult to undo. Also, raising the salary bar affects both new and existing employees.
Because people talk, it is crucial to develop a plan to adjust the salary of current employees to hopefully prevent problems down the line.
Employers need to be especially aware of pay rates when considering long-standing employees.
If a new employee starts at a higher rate than a woman or person of color already employed by your organization, you are opening yourself up to the risk of a lawsuit due to pay discrimination.2
Compensation Analysis
Your organization may need a compensation analysis to help determine the salaries you should be offering current employees to remain fair. A compensation analysis assesses your current salary structure and helps align team members’ performance with
business goals.
However, it is also important to remember that adjusting salaries is not an overnight process. It takes gradual change over two or three years to bring current employees up to the proper salary and build the new pay ranges into your budget. It is critical
to communicate this timeline to current employees or they may feel that you are not addressing the issue and jump ship.
To get an idea of just how much salaries have changed, consider the following example. An assistant controller
in the median salary range making $70,000 in 2020 would be making $80,970 in 2022 if they remained employed with the same company and received three cost of living adjustments. If that same employee were hired today, his or her salary would be $93,120,
a 15% difference. This example illustrates just how drastically salaries have increased in recent years. It also shows why it is important for your organization to close the income gap between current employees and new hires.
If your
salary offerings aren’t in line with those of your competitors, your organization will have a hard time attracting new talent and retaining current employees. Candidates may like your company, but if there is another organization offering them
a higher salary, they are likely to take the money. If your current employees feel as if they aren’t being compensated fairly – either internally or in terms of the going rate – they will start to look elsewhere. In today’s
labor market, there is someone willing to match their expectations.
The salary expectations of today’s candidates seem to be holding strong, especially as inflation rates rise. Make sure your company is equipped to address these
requirements in a way that makes sense for your organization and your current employees.
1 Edward Segal, “How Employers Are Responding to Challenges Created by Labor Shortage: New Survey,” Forbes
online (Aug. 3, 2022).
2 Christopher T. Wall, “Five Ways a Tight Labor Market Could Affect Equal Pay Claims,” Bloomberg Law online (June 16, 2022).
Stephane L. Smith, SPHR, SHRM-SCP, is managing director of workforce strategies for RKL Virtual Management Solutions LLC. She can be reached at slsmith@RKLvirtual.com.