Two compensation issues are giving workforce leaders fits at the beginning of 2018. The first is the continued small budgets for pay increases which causes challenges for retaining your best workers in a tight labor market. The second is gender pay equity laws being enacted in many cities and states.
Salary increase predictions from Mercer and The Hay Group for 2018 in the US are not any different from 2017, about 3 percent. In the United States, an average 3 percent pay increase is predicted by Korn Ferry, the same as for 2017. Adjusted for the expected 2 percent inflation rate in 2018, however, the real wage increase is 1 percent—down from last year’s 1.9 percent.
This conservatism is surprising, especially in the light of the continued low employment rate and the struggle of employers to find qualified workers. For example, my contacts and clients in financial services, software, biotech, and among non-profit organizations report difficulties in recruiting talent. Surveys of construction contractors indicate that 73% had a difficult time finding qualified workers and 55% are experiencing worker shortages. Among small businesses, 61% are struggling to fill jobs.[i]
How do you handle a tight budget to keep your best employees and to attract critical talent? Below are five steps to overcome these hurdles.
- Keep your wages and benefit packages competitive. Research consistently shows that employees — especially the better ones — expect their wages to be competitive for their industry and region. Pay is a hygiene factor: if it is not competitive employees quickly become disillusioned, and the best ones, or those with in-demand skills will leave.
- Dish out pay increases unevenly. While keeping your pay competitive for all employees (except those on performance-improvement plans) it is also vitally important to provide your top performers and your high-potential top performers with significantly higher pay increases. The base pay for consistently high performance should be 10% to 20% higher than others in their pay grades. Your competitors are gunning for your best workers and will offer them a 10 to 20% more pay to get them from you. Your employees are susceptible to those offers. TINYpulse reports that 25% of all employees would leave for a 10% raise.[ii]
- Provide your strategic project work and most challenging work to your high potentials. The fact that they love a challenge makes them high potential! Research consistently shows that the best employees want a great work experience and opportunities to be innovative. This includes interesting work challenges, great workplace technology, developmental feedback, career development (including training).[iii]
- Flexible work. If your company’s budget does not allow you to keep your pay competitive, consider providing flexible work arrangements to provide a new form of “equity” to attract and keep employees. (You will also learn that your workers will be more productive and satisfied, and you will save costs). A study by Global Workplace Analytics showed that 79% of U.S. workers say they would like to work from home at least part of the time.[iv] If you are struggling with ways to keep your best talent and have a limited salary increase budget, many workers would stay with their current employer if they could avoid long commutes. Today’s flexible work arrangements are not the same as 1990s flex time. Click here for more information.
- Provide good pay increases to your critical contractors. For decades, many employers have had as much as 1/3 of their workforces staffed by contractors, temporaries or gig workers (working for the company through a platform such as Upwork). If some of them are doing exceptional work and are nearly irreplaceable, you should work through the appropriate channels to provide them a significant raise.
Gender Pay Equity Laws.
Many states and cities have banned salary history questions during the interview process in an attempt to eliminate pay discrimination against women and people of color. California, Delaware, Massachusetts, Oregon, New York City, Philadelphia, Puerto Rico and San Francisco have passed such laws. The states of Idaho, Maryland, Rhode Island, Texas and Virginia are also considering similar legislation. This issue is not going away. It is time to change your practices.
- Transparency. In addition to posting your job description with required degrees, experiences and competencies—add the job’s salary range. Yes, add the salary range. Why not? With laws limiting historical salaried data, managers can no longer make hiring and salary offer decisions based on the job candidate’s current pay. Instead, they need to do what they always should have been doing. They should make decisions on an individual’s qualifications and motivation for the work based on the results of structured interviews and/or non-biased, validated assessments.
While about a third of all employers have policies that prohibit employees from even discussing pay, researchers are finding that more employers are opening-up about their salary structures. The initial results show that employees kept in the dark about pay perform worse than those who were informed. Employees, especially the best employees, armed with salary data worked harder to maintain their level of performance and higher pay.[v] I have practiced pay transparency for years and have found it to be beneficial and a practice that builds trust between employees and management.
Think of what pay transparency would do for your organization:
- Counteract the information (often incomplete or inaccurate) about your salaries on Glass Door or Salary.com.
- Reduce the number of candidates who are interested in higher pay from applying, saving the candidates and recruiters time.
- Reduce the amount of time in salary negotiations.
- Reassure women, people of color, and frankly all employees that they are being paid fairly and competitively.
One caution with pay transparency. External pay transparency also means internal pay transparency. While employees will not learn individual employee salaries, it will highlight any inequities with your current pay structure. If you have major internal salary disparities, it is best to address them first. This will require an analysis of your current pay structure and practices and it may require a more budget to address inequities.
What is your organization doing to make the most of tight salary increase budgets and to adjust to pay equity laws? Join the conversation.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults and provides “hands-on” support for innovation, global talent strategies, developing agile leaders and teams, and other strategic initiatives. Questions? Please email Victor at email@example.com. Visit http://www.victorhrconsultant.com for valuable free reports. For innovation visit http://www.InnovationOne.io.
[i] “Labor Shortages in The United States Are Becoming an Increasingly Dire Issue,” (Sept 1, 2017, 11:07 AM ET). Seeking Alpha. Found at https://seekingalpha.com/article/4103615-labor-shortage-united-states-becoming-increasingly-dire-issue.
[ii] “The Employee Engagement Report” TINYpulse. Found at: https://www.tinypulse.com/lt-2015-employee-engagement-organizational-culture-report?utm_campaign=Blog+Announcement&utm_source=hs_email&utm_medium=email&utm_content=31443325&_hsenc=p2ANqtz-9-GrNjGX0Vu_dJh2uXbYKpC53NjargVkNFk7T7gZYrKF_fOUGXlia1R42-ang8_hLBPHPPkTUnRgVHZ1QSAJmafEQKaA&_hsmi=31443325.
[iii] “40 Percent of CFOs More Willing to Negotiate Perks. CFOS in Chicago, Washington, D.C. and Boston Increasingly Open to Negotiating Nonmonetary Benefits,” Dec. 10, 2015. Found athttp://rh-us.mediaroom.com/2015-12-10-40-Percent-of-CFOs-More-Willing-to-Negotiate-Perks
[iv] Global Workplace Analytics, by Kate Lister. www.globalworkplaceanalytics.com/telecommuting-statistics. May, 2014.
[v] Tanza Laudenback, (May 3, 2017, 11:07 AM), “More tech companies have stopped keeping employee salaries secret—and they’re seeing results,” Business Insider. Found at: http://www.businessinsider.com/why-companies-have-open-salaries-and-pay-transparency-2017-4.