One of the hardest recession-based habits for major companies to break is the low-ball compensation offer. Many companies are still offering what I like to call “recession wages.” During the recession of 2008–2012, the mantra was to do more with less and cut costs as much as possible. The terms “streamline” and “lean” were quite popular. And you may have heard your boss say things like, “You ought to be happy to have a job,” or “If you don’t accept the offer, someone else will.” These phrases lived and should have died with the recession.
In tough economic times, companies have to make tough decisions. And one of the toughest things to do is recognize when times have changed. When is it safe to offer better benefit packages? Today, the unemployment rate is 6% and companies are hiring again. Although there is a lot of competition for jobs, there’s also a lot of competition for good workers. One of the biggest gripes I hear from job seekers, also featured in a New Yorker article from 2013, is that companies do not want to pay a competitive salary for their skills, education, and experience. This is why employees keep looking for better offers, and why job retention numbers are very low. If you have an out-of-date compensation policy, not only will you have difficulty attracting workers, you will also have a hard time retaining them.
Organizations can’t have it both ways—they can’t complain that there aren’t enough talented applicants and then refuse to pay top dollar when they come across a top performer. It’s a fact that 70% of all employees are passive job seekers; they’re keeping their options open. Many of these job seekers aren’t actively looking for a new job, but with the easy access of LinkedIn and other social media apps, they are being courted and even poached by other companies who are not afraid to offer them better pay.
Some things get better with age, but your benefit and compensation package is not one of them. Companies need to be sure to adjust their salaries to reflect inflation and the current job market. There are three main compensation strategies: lagging the market, offering the fair market value, and leading the market. It’s really quite simple: some companies choose to pay their employees the average market rate. Others choose to pay a little less, and they rely on an overcrowded applicant pool or their reputation as leverage. Then there are the companies that want to be highly competitive, and they compensate their employees above the industry standard.
Of course, most people want to be paid above market value, but it really does depend on many factors, such as location, demographics, and cost of living, as well as education and experience levels. Before implementing a strategy, have your HR Analyst or Business Analyst perform a compensation survey by collecting pay data and comparing it to your current pay rates. Use the findings to determine which strategy best fits your company’s mission and vision statement.
If you are happy with your current salary, then congratulations! Most of us feel some insecurity about our pay rate, or at the very least are curious about other people’s salaries. Pay inequality is a hot topic in the American workforce, so much so that the current administration is working on broad sweeping changes to address gender and racial pay inequalities.
Surely you’ve seen the headlines about striking fast food and retail workers who are demanding a living wage as opposed to the minimum wage. Many states are raising their minimum wage requirements to accommodate inflation and the higher cost of living. Some companies have chosen to be proactive and offer a “lead the market” pay strategy by compensating their employees well above the minimum wage, thus reducing a lot of unnecessary discord and disengagement.
Many of us don’t like talking about pay and raises with candidates and employees because we want them to work with us simply because they love us and we’re awesome; but that’s not realistic. We must deal with the compensation piece. Pay is very important, and someone’s paycheck, consultancy rate, or fee is a sign of respect. Plus, amazing things happen when you take care of your employees financially; they become more loyal, connected, and productive.
Some things do get better with age, like Robert Downey Jr., wine, cheese, bourbon, and scotch, for example. But, compensation? Not so much.