The Compensation Conundrum: How to keep your hiring competitive in today’s tight job market

 

Employee Compensation Report and Salary Review

Image: Kentoh/Shutterstock

Last week, we chatted with Raleen Gagnon, VP and general manager of Total Talent Intelligence at Magnit, about the challenge of finding skilled candidates to fill open positions. Can you compete with Microsoft or Google? Can you use Google to help you research the market? Is higher compensation the only way to attract employees? 

Here’s an edited version of what she had to say.

Editor’s note: This is part 1 of a three-part series. Stay tuned for the second and third part. 

Raleen Gagnon: The conversation that we’re having today, the compensation conundrum, there are 85 different cute phrases we could have used for this. But the reality is that compensation has always been a key challenge for organizations from an HR and procurement standpoint. To have the right competitive level priced for their talents to make sure that they were able to attract the right talent, but they weren’t leaving too much money on the table cost optimization is always a key focus as well. And in the past few years, this entire challenge has become really exacerbated by the strains that we’ve seen on the workforce overall. So whether organizations are really struggling with turnover today, or struggling to find people to apply for their jobs or accept their offers, everyone is now critically aware that compensation is key. But because it is top of mind, it’s in the headlines every single day, we have organizations and employers out there that are making a lot of swift decisions, hoping that this will be their stake in the ground or give them some sort of competitive advantage. 

Image courtesy of Raleen Gagnon

I’ll give you a few examples. You know, it’s not just supply and demand, or the COVID effect that has put this pressure on compensation. We’ve seen migration go up 18%, and that’s just in North America. Across the globe in most major cities, we’ve seen similar shifts, and we’ve seen wages increase, on average, 6% to 13%. But we’ve seen some wages, like for warehouse workers, go up closer to 40%. And sometimes, depending on the role, there have been all these influences, knowing where these people are, and understanding that the balance of the demographics, the age of the life stage of the workforce, that we’re hiring, has fundamentally shifted with far fewer Baby Boomers and, frankly, the majority of those being eliminated from our workforce in the next five years. You know, as we go forward, organizations need to balance all of those things. We see companies making decisions about, “Well, if our workers have moved to a lower-cost market, we can pay them competitive wages in that marketplace.” You know, it makes sense, as we think about hiring remotely, that we can save money by hiring in these remote markets. But that’s because we’re hiring them for the first time. In today’s market, where supply is limited and demand is so high, turnover is a constant concern. It’s hard to justify the best practice that says give folks a pay cut, regardless of where they’ve moved to. It’s those things and truly being competitive that I think gives us 3,000 different ideations to walk through on any given day around compensation.

How can smaller companies compete in the area of compensation with the Microsofts of the world?

An image of Raleen Gagnon

Photo courtesy of Raleen Gagnon

Raleen Gagnon: Not everyone can, but not everyone is trying to. I mean, Microsoft attracts a certain type of skill, a certain type of employee that feeds into Microsoft’s culture. And you know, that culture vibe really is important. It doesn’t matter what you’re paying someone or how much they like some of their co-workers if there’s constant pressure and there’s constant derailment of your achievements or roadblocks to success. There’s a different level of toxicity in every single organization, and everyone has it to some degree, and some individuals in your business may be more sensitive to certain tones or certain behaviors. So, that phrase that you’re not paid so you can’t please everyone, everyone is always going to find something about some other organization that they enjoy. 

But of course, from a management standpoint, you can control the culture, to the best of your ability. It’s how you lead, it’s how you manage, it’s how you engage, and it’s who you hire. Right now, the challenge of who you hire brings us right back to the compensation challenge. Because if your budget is limited, then you’re not necessarily always going to be able to attract the top talent. You’re going to be attracting people who may be using your organization as a stepping stone. And so again, you don’t need to be the top-paying employer in your location because oftentimes, you can be hiring remotely. It’s all in how you position. And so the culture was a good start, but it’s just one aspect of the new conversation that organizations need to have around hiring.

I think it’s interesting that from a headline standpoint, we’ve moved from conversations around employer brand, to employee value proposition, and it’s an ongoing prioritization. Years ago, if you had a strong employer brand, you could pay less. It wasn’t that you weren’t the top-paying organization because there was value for those workers to be a part of your organization. Even a small or midsize company, you could be that employer that everyone wants to work for. So, that had a tangible benefit and could potentially be cost efficient. But today, it’s the employee value proposition because too many individuals have really shifted their perceptions of what is work-life balance. So sure, a lot of us may still be willing to work late at night or taking early morning calls or working through the weekend to get a deadline. But we don’t want to be doing that every week anymore. Right? We found that there was a pleasant experience if we had time to go down to the beach or take walks or spend time with our family. And so everyone is reprioritizing based on them and, you know, total rewards packages. And even on the contract labor side, are the bonuses, the incentives and the flexibility warranted? All of that now is part of the negotiations and your total rewards is not to give them a gym membership any longer. There’s so many different ways that we can go. 

What do you mean by total rewards?

Raleen Gagnon: I’ll tell you, it is not universal. Years ago, so you get the gym membership and the smoking cessation program and the theater package and whatever the local events were, that’s not the answer anymore. And again, I said it earlier with the retirement of the Baby Boomers and the shift of life stage, if you’re an organization and 90% of your employees in your workforce is in their 20s, your long-term retirement planning and you know, those care packages around, you know, how will you transition your parents into that next stage of life, those are not going to resonate with your 20-somethings. And they may expect the gym membership, but we need to revisit some of the perks that we’ve had in the past, for our professionals, you know, do they still really need to do all of their own administrative work? I’ve watched sales organizations around the globe shift and pull back from corporate phones and corporate cards and corporate expense accounts. And, “Hey, everyone, put it on your own dime, and then we’ll reimburse you if we think it was a valid expense.” It creates an administrative burden. Stop generating revenue and doing your job and do these administrative things. So the benefits of administrative support, the benefits of proactively arming your team with the right resources and getting creative. If you live in, and I’m not picking on a region, but if you live in a region that is surrounded by wineries and culinary genius, and new inspirational genres of food, then have some of that creative cooking and creativity built into optional classes that are available during the work day. You know, if your organization sits in a community that is a bit more economically depressed, think about what individuals might not have access to if they’re working all day, what medical services, what life-balance and services are really only available during business hours? And how can you make sure they are accessing those services and have the same abilities to do so. Be flexible in your hybrid and remote strategies, look at your systems and see where people that work for you live today. If you make them come in three days a week, how many of them are going to have more than an hour’s commute? Because you can actually predict some of your turnover by making some of those decisions. When you look at that data, you can know how many of them are close to public transportation, or how many of them, based on whether they have individual benefits or family benefits, have multiple dependents at home that may want to shift their schedules to make sure they have certain flexibility. 

How do I figure out the right things to include in these total packages?

Raleen Gagnon: Look within your existing numbers. What are you offering today for benefits that no one is taking advantage of? They’re clearly not valuable to your workforce. Or if you really believe it might be, it hasn’t been communicated effectively. What is everyone clamoring for? If you have certain options that are more driven by entertainment? Are they resonating more with a certain age demographic within your workforce? You know, if you have unlimited vacation policy, are there certain times where everyone is taking the same vacations and it could potentially be disruptive and you might as well actually plan, “Hey, you know, we’re going to shut down from Christmas to New Year’s. We’re gonna, between this date and this date over the summer, allow everyone to do what they want to do.” You know, you can even analyze what is actually happening within your workforce today. 

And again, I’d go back to look at the demographics of your workforce. Look at when they might be switching from individuals to full family plans. You can see the number of dependents they have. Do that type of research first and then get creative and think about what did – even as a small task force – what did you want, when you were in that early child era where you had lots of nappies to take care of, and there were constant diapers or formula, what did you need? I’ve seen companies, you know, infuse something like Care.com, and actually offer babysitting services at a discount or completely subsidized up to a certain amount to ensure that their workforce could have access to that. We’ve seen companies take the Uber or the Lyft concept and actually create corporate accounts you can use because we know it’s a burden to commute into the office. But we want you to have that time face to face, use this app and this code, and we are transporting you to the office. 

You know, we already know from every survey that anyone has ever done, or any insights that anyone has published that the top two reasons why people are leaving are more pay or career advancement. But the reality is, those answers are the same, because career advancement is expected to come with more pay. That is our assumption. And so really, they’re subtly and politely saying the same thing. Look at who has left your organization. It is very simple to run a report and see who has departed in the past six months, in the past year, when you see spikes, then do a cross reference and see how many of them are actually given any meaningful increase in pay beyond your standard 2 or 3%. Because I can tell you right now that you’ll find huge pockets of those people really did leave because you didn’t stay competitive. And I would want to guess that in many of your organizations today, what we see is, “We’re struggling to hire people, so let’s go find out what we’ve got to increase the pay for these critical positions. We already have a team of quality engineers and a team of customer service resources. And we need more of them. But we have to pay more to get new ones in.” The wages have changed so much in this country that if you hire new team members today, competitively, and you’ve got people in your organization doing the same role five years ago, that they came on board five years or more, you will be hiring them, even if they’re entry level, at a rate that is equal to or greater than your incumbent staff. So, now you’ve got highly tenured, high-performing experienced knowledgeable staff who are probably doing more than their job descriptions. And you’re gonna hire new people who don’t know the business and haven’t done this before. And pay them more. These are the reasons people are leaving. So yes, be competitive when you hire. But if you don’t align your highly tenured pay and your incumbent staff to that new compensation, you’re valuing your new hires above your existing resources, not really encouraging them to stay, when you think about it. And look at compensation and balance.

It’s not even just about your existing staff and your new staff. We’ve known for years there was a gender pay parity problem, that there’s a parity problem across various diverse groups within American and global workforce culture bounding, right, but it’s a very big ask. I know that when I say, Hey, you should be hiring your existing staff at the same … you should be paying them the same rate that you’re currently hiring your team members. And that’s a big ask. Organizations don’t have a budget to necessarily adjust everyone to the same degree on a quarterly basis as hiring wages shift, right. And I think that’s part of what’s driving some of these regulations that we’re seeing now where, you know, there’s pay transparency laws that have just passed in California, they’ve previously passed in Colorado, we have salary history bans, and salary disclosure laws that are passed elsewhere across the country in recent years. And what we see in each case, as you know, as we monitor those rates and those hourly wages, you know, we see that over time, because everyone has more visibility into what the competitive wages are, then everyone is negotiating within that range, and it allows the range to become more targeted, more accurate and more evenly leveraged across the workforce in those markets. So does it completely eliminate existing disparity in work pay? No. But it addresses the problem moving forward and allows people as they start to move to get closer to parity within their own individual space, if that makes sense.

Also see: