Whether you call it the Great Resignation or the Great Reshuffle, it’s clear that one of the compensation challenges of 2022 is to compete for talent in a jobseeker’s market. Continuing a trend that grew during the pandemic, an unprecedented number of employees are leaving jobs each month. In the US, a record 47.4 million workers voluntarily quit their jobs in 2021, a trend that is continuing into 2022, with 4.4 million employees leaving their jobs in April, creating 11.4 million job vacancies.
While conversations about people’s motivations to leave are important (and frequent), it’s important to consider the impact on companies and those who decide to stay. What effect will this have on pay scales and employer transparency about pay?
Should employers be paying more?
beqom’s Employee Expectations in Hiring Report found that in 2021, just over half (52%) of Americans expected their salary to be higher if they changed jobs during the pandemic. But pay was not the only factor. For example, 75% of Americans said they might accept a lower salary if the job offered flexible working hours. The desire for workability in their lives remained consistent in our 2022 Compensation and Culture Report, which found that about three-quarters of workers in the US (70%) and UK (78%) would consider leaving their job for more flexible hours, followed closely by more time off (69%) or flexibility in work location (68%).
Other factors that might entice employees to switch jobs include more pay transparency (60%), having executive compensation tied to ESG initiatives (52%), a greater focus on sustainability and CSR initiatives (51%), and an operational DE&I strategy (46%).
Though many employers may not be able to raise salaries without facing other consequences, one cannot escape the fact that there is pressure to raise pay scales in the current job market. Companies need strategies to deal with that reality.
Addressing the challenges of rising pay expectations
The Great Resignation and resulting labor shortage have put upward pressure on pay, and in 2022 the added spike in inflation in many countries is adding to that tension. To further complicate matters, rising pay scales can lead to a related problem of pay compression which can threaten retention. Pay compression occurs when new hires are getting higher pay due to market conditions, but existing employees are not getting pay raises at a similar rate, creating a situation where employees have to leave an organization and take a new job in order to get market rate pay.
Some have even called for retention raises, such as Wharton professor and best-selling author Adam Grant. “During the Great Resignation, people who stay are paying a loyalty tax,” says Grant. “New hires are making 7% more than people currently working in the same job. Hey managers: Why not offer a retention raise instead? Commitment should be rewarded, not punished.” As Grant also noted, “It’s more expensive to recruit, hire, and train new people than to invest in your existing team.”
Some companies are being more strategic with where they apply raises. After talking with CHROs about their 2022 compensation strategy, Founders Circle Capital concluded that, “Merit-based and cost-of-living pay raises have gone up by nearly double across the board this year. To support retention without over-inflating salary budgets, CHROs have been looking more closely at employee performance ratings to see where they can afford to offer above-market raises.”
But, not all employers can afford major raises in employee pay and so must find other tools to aid retention. Research shows that pay transparency can help.
“Although not every employer is able to offer raises to combat inflation, there are still plenty of other effective ways for employers to alleviate employees’ concerns about pay and inflation,” says Tanya Jansen, beqom co-founder and CMO, “such as improving benefits, pay transparency, and PTO policies. At the end of the day, open feedback and transparency are key to helping employees gain a better understanding of their earnings, and increasing trust with their employers.”
Does pay transparency make a difference to workers?
The 2022 Compensation and Culture Report found that transparency around pay is increasingly important to employees, especially amongst Gen Z and Millenials. The survey showed that a majority of employees said they would consider switching jobs for more pay transparency than their employer currently provides (US 60%, UK 57%). US Millennials (68%) are the most likely to consider switching jobs for more pay transparency compared to Gen Zers (61%), Gen Xers (48%), or Baby Boomers (49%), with similar numbers in the UK.
Employees are coming to expect a transparent pay structure, even as many US states and even cities have enacted legislation that addresses related issues like providing salary ranges, prohibiting questions about salary history, and requiring equal pay for equal work. In the UK, gender pay gap reporting requirements have been in place for larger employers since 2017. The UK government is now piloting a scheme wherein participating employers list salary details on job adverts and stop asking about salary history during recruitment, in an effort to promote fair pay.
Job seekers don’t want to waste time considering jobs that don’t meet their salary expectations. When job hunting, the vast majority of respondents in our survey reported that they would be more likely to apply for a position if job descriptions were transparent about salary range (79% US, 89% UK).
Does remote work demand rethinking pay practices?
The increasing geographic dispersal of the workforce presents the challenge of how to apply cost-of-living adjustments when employees are spread across different regions. Founder’s Circle Capital found that 35% of CHROs were leveraging standard geographic pay differentials for their distributed workforce, adding additional complications to the process of calculating appropriate market adjustments. Companies implementing location-based pay need to ensure they have the data and infrastructure to support the added complexity.
With the upward pressure on salaries, CHROs are trying other angles to manage the salary budget, such as offering equity or specifically targeting top performers with more lucrative pay raises.
One thing is clear, companies increasingly need to be able to implement sophisticated pay strategies, using the right enabling technology, in order to deal with today’s challenges.
