In the struggle to find cutting-edge solutions to compensation challenges, many employers scan the room to see what everyone else is doing. While it is natural to want to know what others are doing, it is important to keep in mind that everyone is fighting the same battle. In order to stand out, something different needs to be done.
Still, there are some common themes that have shone through the fog over the past couple years. Being aware of these, as well as knowing the principles associated with each, may aid in discovering that unique feature applicants want above all else.
Pay transparency.
2022 has been marked as the year of pay transparency by several sources such as LinkedIn and Inc. Although a robust total rewards package is important, the first criterion many employees use is salary to value their job. They may not linger long, but it is the starting point, so transparency can be the beginning or end to the conversation. Providing pay transparency sooner in the application process may feel like a spoiler alert, but applicants appreciate knowing that an employer will meet their pay expectations.
Several states have also made it law. Multi-state employers, with no boundaries on where employees can work, also find it necessary to disclose pay information. The movement, in part, is to address gender and racial pay inequities, but may also help companies identify situations where pay compression has resulted from wage wars.
It may aid in retention. Posting pay ranges in a location accessible to all employees, disclosing where data was obtained to benchmark pay, communicating how increases are determined, and having personal conversations to share where each employee falls in the pay range are successful strategies. Making managers part of the conversation also helps employees feel as if someone who understands their job has a hand in determining fair pay.
A word of caution: Pay transparency is a one-way street. Although it is required for employers, some states prohibit asking employees about salary history. Employers have found that asking for a candidate’s pay expectations rather than current salary sidesteps legal issues.
Pay equity.
As mentioned earlier, this trend has risen from efforts to provide equality across all employee groups. Several sources report that women are earning 82 cents for every dollar men earn in 2022. The Department of Labor reports that, in 2020, white men earned 18 percent more than black men and 27 percent more than Hispanic men, while white women earned 15 percent more than black women and 25 percent more than Hispanic women. More organizations are focusing on closing those gaps.
States, such as Illinois, now require wage reporting along with other annual reporting requirements, in an effort to identify pay disparity. Most states also have some level of legislation to address fair pay, primarily based on gender disparity, with some cities enacting additional requirements. Multi-state employers should be aware of the requirements where employees work.
Pay compression.
As employers scrambled to fill positions and employees’ salary demands rose, pay compression seemed to sneak up on companies while their eyes were on the recruiting ball. Suddenly, new hires are earning as much as long-term employees nearing the top of their pay range. Often, it results in additional turnover.
Some employers were able to avoid compression problems by adjusting pay ranges in conjunction with increasing starting salaries. Including senior management in salary conversations can help shift budgets to fit the greatest need. In some cases where wage increases are not in the cards for current employees, temporary solutions can be introduced to include bonuses and work/life balance options.
Temporary pay bumps.
Also referred to as noncompounding pay, this is introduced and intended to be a short-term alternative to adjusting base pay when pay compression occurs. Stay, referral, and lump-sum bonuses have become a way to increase total earnings above new hires earning similar base pay. This has become a popular solution because it is adjustable and, in many cases, criteria must be met in order for it to be granted.
This solution also provides an opportunity for organizations to review pay strategy, adjust where necessary, and evaluate future budget shifts. In times of financial uncertainty, it can provide some safety from inflated compensation commitments.
Compensation reviews.
A reaction to pay compression, in many cases, compensation reviews have become a necessary part of retention. Successful compensation reviews go hand-in-hand with a review of job descriptions, which had been put on the back burner during the pandemic. Job duties have shifted and changed for many employees, as did compensable factors such as the type of supervision received or provided. Other positions skyrocketed to the top of the demand pile, such as IT programmers. In some cases, pay rose due to working conditions, and front-line workers’ value increased based on reporting requirements, where work-from-home employees may not have experienced the same results.
Compensation reviews can also help reveal areas of pay disparity, pay compression, out-of-date salary ranges, and instances where ranges are obsolete because jobs no longer exist.
Remote work pay/geographic assessments.
It would be remiss not to mention how remote work has influenced compensation. Organizations that are able to offer remote work options also find it necessary to make adjustments due to state or local requirements such as family leave or disability insurance requirements, minimum wage, and tax obligations. When extending a job offer to an employee working in an area where earnings are higher, companies need to be prepared to pay based on that market, not the “home office” location.
Within this trend is another emerging trend—work from anywhere. Also known as digital nomads, these employees have the ability to work from literally anywhere in the world. This approach does not work for all roles, but if offered, job duties are weighted more than location. There are other things to consider, such as taxation, benefit requirements, technology, and scheduling, but base pay adjustments are not a factor.
These trends are interwoven into each other in many ways. Where you see one, you typically see another. Being familiar with each can help organizations be proactive to shifts rather than reactive. For more information on these or other compensation strategies, contact MRA’s compensation team.
