In part one of this two-part blog series, we looked at the toll that inflation is taking on employee buying power, but also at the fact that it is the demand for talent, rather than inflation, that is causing upward pressure on pay. As the war for talent rages, many companies may assume they need to bear the cost of higher wages in order to keep important jobs filled. While that may seem like a quick (if expensive) fix, there are ways to be smart about raising pay, and many alternatives that can accomplish talent objectives without blowing up the compensation budget.
In this article we present strategies proposed by leading experts for attracting, retaining, and engaging talent in creative ways, while at the same time boosting performance, improving the employee experience, and controlling costs.
Higher pay is not the only answer
A new report from Gallagher, the 2022 U.S. Career Wellbeing Report, shows that more than 3 in 4 companies enhanced base salaries to meet recruitment and retention objectives. Nearly 8 in 10 employers (78%) increased base salary for FY 2022 at nearly two times the rate of other total rewards to attract workers. Yet Gallagher points out that “higher pay on its own isn’t going to help. A high level of engagement requires employers to balance the value of employees’ individual pay with the value of their personal work experience.” Indeed experts suggest that there are other options to look at besides raising pay.
“Organizations should also remember that pay is only one tool in their toolkit,” says Lauren Mason, Senior Principal in Mercer's Career practice. “Take a broader view of total rewards and implement benefits that help meet workers’ needs – particularly those that are low to no cost, but of high value – like flexible working, or financial wellness programs.”
"Compensation, while being a key lever for attracting and keeping talent, is not the only answer," says McMullen. “Non-financial rewards are also key, particularly learning and development options” to help careers advance. "Employees need to have a positive view of their opportunities to learn and grow with the organization.”
Four innovative strategies to combat rising costs of compensation
So what’s an employer to do? Speaking in the webcast, “The new shape of work - rising costs and compensation considerations,” Andre Rooks, Partner and Career Business Leader at Mercer, suggests four strategies employers should consider:
- Focus your compensation efforts on supply and demand for talent. Employers need to take action to ensure their pay is competitive—and not just for new hires—by confirming that long-term employees are being paid based on the labor market and that their pay is not lagging behind.
- Give special consideration to workers most affected by inflation. What's keeping low-wage workers up at night are concerns about their ability to make ends meet financially, especially given the rise in grocery and gas prices. Consider taking a "living wage" approach to setting minimum wages internally, evaluating whether starting wages may need a bump, especially in higher-cost markets. Look at lump-sum awards, stipends, or commuting assistance to help employees with expenses. Incentive payouts in fact have been higher, suggesting that employers are heeding this advice.
- Increase transparency to reassure workers their pay is competitive. Employees today see compensation as a “black box” and don’t understand how their pay is set. Most organizations don't share how pay is determined, leaving employees to assume that they are underpaid. Rising wages due to the labor shortage, coinciding with periods of high inflation, have created confusion for employees. Employers have an opportunity to share with employees not only how pay levels are set, but also information on the market range for their role. Not only will this help better manage employee expectations around their pay in today’s difficult market, but it will also help prepare and respond to heightened pay transparency requirements amidst ever-changing state laws.
- Consider the employee experience. You can’t win the war for talent with compensation alone. Take into account the broader employee experience. Often, it's not compensation but underlying issues in the work experience that drive employees to start looking for a new employer. Dig to understand and uncover these issues and take action to address them before it's too late. Implement continuous performance management capabilities to provide your employees with recognition, feedback, and coaching.
Four talent strategies for inflation that go beyond base pay
Gartner suggests four innovative talent strategies that can help reign in compensation costs:
- Increase Compensation and Benefits, but… Look beyond base pay to things like one-time signing bonuses and benefits, and decoupling pay and location.
- Pay with Time. Offer employees work schedules with greater work-life balance or even embrace “radical flexibility” to give employees control over where, when, and how much they work.
- Invest in Internal Mobility. Accelerate internal promotions and backfill lower-level vacancies from the external labor market to retain key talent and reduce the time-to-fill for critical roles.
- Widen Talent Pools. Consider candidates from unconventional backgrounds that are seeking new career paths and reevaluate qualified talent and predictors of long-term success.
Creating connection and loyalty in the workforce, regardless of pay
Today’s macroeconomic environment has created a kind of hypermarket for talent, with record-setting quit rates and job openings, increased retirement, and high employment rates. As a result, new talent is at a premium, which then increases the gap between new and existing employees, creating pay compression and pay equity problems, which in turn further exacerbate retention issues.
To think that this can all be sorted out by restructuring the entire pay scale in a company is just not practical. Yet we want to have happy, engaged, loyal employees, who feel connected to the company. And there is a new challenge. With the remote/hybrid workplace, we can’t rely as much on the old ways of connecting to our people through the bonds created by in-person interaction.
The workplace has changed but the tools have not yet caught up. Yes, we all have remote meeting software. But managers need new tools to deal with new problems. How do we create connections now? How do we engender team spirit and loyalty? How do we get the same depth of feedback and informal input we get in the office? Our goals and deliverables have not changed, so how do we manage people to produce results?
We need tools to connect, value, and reward people. We need to build trusted relationships but we no longer have the same means of connecting. Hence we need tools to help managers check in with employees, give praise and constructive feedback, and show they value their contribution. We need tools to help teams connect with each other in a natural, fluid way, in the daily flow of work.
Compensation and performance technology are crucial in inflationary times
Both compensation management and performance management play an important role in navigating through times of inflation and a hyper-competitive job market. The right technology can make all the difference: total compensation technology that enables flexible reward strategies and continuous performance technology that connects and engages your employees.
Interested in achieving a people-centric performance and rewards culture? Download our free white paper, Continuous Performance Meets Continuous Compensation.