How to create a meaningful compensation package in a highly competitive market
Over the last several months, we’ve had many requests from clients to review their pay rates and total compensation practices. These requests have arisen out of a combination of factors, including a rising cost of living, a highly competitive candidate market, and the outcomes of the pandemic. Employees are not only expecting (and getting) higher salaries/wages, but also more flexibility in how and where they work. Increasingly, we’ve also been seeing/hearing about employees rejecting solid offers, and even jumping ship for a better offer elsewhere, after they’ve accepted – sometimes without a word. Add to this, and often having more of an impact, existing employees are leaving for better pay and/or benefits such as working remotely.
Many employers are simply paying the price and offering more, especially when they’re desperate to fill positions and/or retain employees. While this may seem like the only option, they risk paying an even higher price to maintain equity across their organizations. Of course, not all employers can meet the demands of new and existing employees and are losing people as a result.
How can employers meet increasing demands and still be sustainable?
Throwing money at the problem isn’t always the best solution. Not only does that drive up market rates in unwarranted ways, it also has a trickle-down effect to current employees. Instead, they must focus on being a desirable workplace to join and, more importantly, stay at. With an understanding that not everyone needs and wants the same things, rather than trying to be all things to all people, the key is to think creatively and focus on meeting individual needs.
Starting with your compensation philosophy, it’s important to get clarity on what you can and will commit to across the board. While this may involve meeting the market midpoint, with the market being so volatile, it should be a factor and perhaps the starting point, but not the entire picture. In the present landscape, it’s equally important to consider what you do, can, and potentially could offer as part of your total compensation package. Start first by talking to current employees, individually where possible, to understand what they want and need (i.e., conducting “stay interviews”). This not only focuses on retention of your best, but also minimizes the possibility that you’ll give something much better to new folks coming on board at the risk of unfairness to others. Then, when you’re recruiting new talent, make an effort to understand what they want rather than stating what you give. How can you align with their life in a meaningful way?
The above said, employees also want transparency on pay. They want to see ranges and understand where they can go. But if they also have a say in some of the things that are meaningful to them, they may not mind waiting longer to realize those pay expectations.
The problem with market data and trying to keep up with inflation
Market data certainly has its place within a compensation structure and, when used strategically, can be a solid starting point. However, employers should be mindful that surveys are inherently biased – in part, due to how data is gathered. For example, surveys often collect from a small pool of organizations, oftentimes larger ones and/or are based on employers who’ve paid to participate, or they may rely upon posted ranges on job sites (which tend to be higher, particularly in the current climate). Whenever possible, use a source that allows comparison by actual role/accountabilities (not just title) and consider the data as only one factor. Depending on the size, status, and nature of your organization, using classification criteria can define a role in a way the market alone cannot.
While it’s important to take inflation into consideration, and pay increases do tend to move in the same direction as inflation, as a recent Forbes article explains, they’re not the same thing and are driven by distinct factors. Higher inflationary-based increases can also be difficult to sustain, and employers have the cascading burden of costs related to WCB, CPP/EI, benefits, and retirement plans, etc. Accordingly, when the CPI goes down, employers typically can’t simply reduce salaries.
As a point of reference, on average, pay increases have been around 2% (give or take) over the last several years. The current average is around 3.5% with many employers offering more where they can/have to.
What are employers offering instead of/in addition to pay raises?
We’re no longer in the era of attracting talent by touting foosball tables, game rooms, and onsite gyms. These days, people want to spend less time, not more, at work. Employers are better served supporting higher levels of productivity and flexibility while working, rather than trying to keep employees at the workplace longer. In addition to the components of total compensation we addressed in a previous post, employers are offering:
- Signing bonuses and “stay” bonuses – For new employees, an option is only getting the “bonus” (which may or may not be monetary) if they accept the position within 24 hours of offer.
- Remote work – A recent Ipsos Poll showed that 32% of Canadians (particularly those 34 and under) would change jobs in order to work remotely. Refer also to our post on hybrid/remote work models.
- Providing a range of employment options from full-time with benefits to part-time or contract that allow employees to meet other responsibilities/align with their lifestyle.
- Unlimited vacation and/or workcations (refer to our recent post about the pros and cons of each, in addition to an HR Reporter article about working outside of Canada).
- Friday afternoons off, one or two Fridays per month off, or moving to a 4-day work week.
- Flexible health and wellness benefits that also focus on lifestyle.
- Waiving benefits waiting periods for all employees.
- Allowances and stipends for remote offices and childcare stipends – As noted by Benefits Canada, between September 2020 and 2021, there was a 102% increase in references to unlimited vacation/PTO on Indeed job postings, and 189% increase in mentions of the word “stipend”.
Culture plays a key role in attracting and retaining employees
We’ve said it before and you’ll hear us say it again. Workplace culture is vital, and employees want to be meaningfully aligned with the values and goals of an organization. With more organizations providing higher salaries and flexible benefits, employers have to set themselves apart by truly being a great, not just good, place to work. In addition to an attractive and sustainable compensation package, this includes providing autonomous, challenging, and interesting work; facilitating – and expecting – a respectful, equitable, and inclusive workplace; and supporting professional development and career trajectory. Refer also to our post about people-first workplaces and the importance of defining a culture that truly puts people at the forefront.
Jouta’s HR Consultants can help you review and creatively define your compensation practices.