April 2022
How Can Strategic Pay Rate Increases Attract New Hires and Retain the Best Talent?
Now more than ever, organizations are experiencing the reality that having numerous positions to fill does not necessarily bring in an abundance of great talent. For one thing, the Great Resignation, during which a total of 47.4 million U.S. workers voluntarily left their jobs over the course of 2021, revealed that a significant percentage of the American workforce is looking for something better.
Between the unprecedented challenges of the COVID-19 pandemic, employee burnout and newfound perspectives on work-life balance, the things that once drew prospective employees to jobs are not enough anymore. And, once hired, employees want to feel valued, to have a sense of purpose and, ultimately, to be compensated with a salary and benefits that reflect their skills and recognize their worth.
So why should strategic pay rate increases be a top priority to attract new hires and keep your current team happy?
Why Is Reviewing Pay Structures Necessary?
Generally speaking, organizations should review their pay structures every three years. Importantly, conducting such a review means looking more broadly at the factors that determine how much employees are to be paid rather than merely assessing the salaries themselves.
The people charged with reviewing pay structures must ask how the organization as a whole and how each of its operating divisions get work done, as well as which roles contribute to getting the work done. Carried out in this way, the review becomes an opportunity to refine and adapt roles or, alternately, bring in external parties if that would be more cost-effective.
Once the proper changes are made to pay structures, it is time to adjust actual salary amounts based on the guidelines of the newly updated structures.
What Makes a Pay Increase Strategic?
Strategic pay practices rest on a foundation of complying with equal pay guidelines and adjusting pay continuously to maintain competitiveness in the relevant market for talent. In contrast, transactional pay practices such as hiring someone and paying them an amount just above the salary they previously received or paying them far too much just to fill a position quickly are anything but strategic.
Transactional pay practices often reflect a choice to back into a budget number rather than create a strategy for placing employees appropriately within a validated pay structure. Here, it is essential to note that a validated pay structure is created by using factors such as pay history, functional duties, experience and peers’ salaries. Relying on a validated pay structure makes it possible to identify proper pay placement within a predefined pay range.
Transactional pay practices may be needed occasionally, such as when an organization must recruit for a short-term position. But making strategic increases in pay should be the preferred method for organizations that value equal pay, consistency across similar roles and attracting and retaining top talent.
Strategic pay practices also include performing discrimination analyses, keeping job descriptions and minimum requirements up to date, and ensuring access to credible compensation data for benchmarking purposes. When hiring new talent, reviewing and possibly adjusting salaries for current employees in the same or similar roles are important to ensure consistency. After all, the market rate for a certain role is likely to have increased since the current employees were first hired. Acknowledging this by making appropriate market adjustments leads to better employee retention.
As a procedural manner, the best way to ensure pay practices are compliant and competitive may be to use compensation consultants. These specialists will know how to obtain credible data, set benchmarks and make actionable recommendations.
How Can the Pay Structure Strengthen the Employee Value Proposition?
Regularly reviewing pay structures contributes to maintaining a strong employee value proposition (EVP) because workers receive certain rewards in return for their skills. Those rewards include more than salary increases, extending to benefits and a positive work culture.
It is well known that a strong EVP can attract and retain talent, but all blocks of the proverbial pyramid come tumbling down if there is no sound financial foundation. This is not to say, however, that efforts must be channeled directly into boosting salaries. Base pay rates are important, but employees also place high value on health and retirement benefits, job flexibility, paid time off and career development opportunities. Each is part of a total rewards package.
Whether extending an offer to a potential hire or communicating directly with existing employees, it is critical to convey the big picture. One thing the pandemic has drastically changed is how workers define and measure value. To give just one example of this, the rise in demands for remote work is an indication of how employees are seeking flexibility because they value getting more time back in their day.
Will an Improved Pay Structure Lead to Higher-Quality Work and Reduced Turnover?
It has been well documented that higher wages encourage productivity and better work. Essentially, increasing compensation is an investment for the employer; putting more money into employees translates into a better bottom line. One proposed explanation for this is that current employees feel more is at stake when their compensation is increased. Consequently, they respond by doing higher-quality work. There is also a sense among employees that they owe a certain standard of work to receive a certain wage.
Additionally, strategic pay practices typically result in less turnover. Employees might choose to leave for many reasons, ranging from incompetent leadership and unmet promises to a lack of tools and resources. But organizations that place importance on offering competitive pay and benefits will often find turnover rates decreasing over time.
Can an Improved Pay Structure Result in Fewer Operational Disruptions?
It is not uncommon for a hiring decision to prompt an internal reshuffle. After all, simply bringing in a new team member does not mean that person is filling the gap left by the individual they are replacing. In another scenario, the hire might initiate a review of the existing team’s structure. In all events, a degree of upheaval always accompanies teammates’ entrance and exit.
The least ideal situation is one in which teammates change frequently. High turnover reduces productivity, and it can be stressful for current employees who may feel somewhat disposable or insignificant. For these reasons, making strategic decisions to increase pay will help raise the chances that a new hire will stay for an extended period and reduce the risks for unexpected departures.
Why Does Transparency Matter?
Across-the-board pay increases do not necessarily need to occur when current employees hear new hires are being offered higher salaries. Each compensation package is specific to the individuals who receives it.
This points to why transparency is essential, and also to why transparency must go beyond sharing numbers to include an explanation of the factors that go into determining compensation. At an organization where details about pay and benefits are openly shared, employees who are disappointed to find out that a colleague has a higher salary than they do can be referred to information on the different elements under consideration. In other words, clear, detailed and regular communications about pay and benefits will help employees understand that determining a pay rate can often be more challenging than it appears.
01 April 2022
Category
HR News Article