In the middle of 2021, with inflation and interest rates rising, most salary increase budget projections were expected to be around 3 percent to 3.2 percent for 2022. However, with high wage growth and inflation following its initial April report, The Conference Board fielded its annual survey again (from Nov. 8 to Nov. 19, 2021, this time) with responses from 240 U.S. employers, more than half of which are companies with more than 10,000 workers. In the new survey, executives now estimate that salary increase budgets for 2022 will be 3.9 percent, which would be the highest growth rate since 2008.
This is an excellent example of how quickly the face of compensation is changing and moving in a tight job market. To support talent attraction and retain the employees we have, it is imperative to regularly evaluate compensation practices to ensure that our wages and rewards are in line with candidate expectations and what our competitors are offering.
Five Key Areas to Evaluate Employee Compensation
1) Stay bonuses.
A stay bonus agreement, or a retention bonus agreement, is a written agreement between a company and a key employee to induce the employee to stay with the company. These are common during a merger or acquisition but have also been used to retain key employees – specifically essential employees – needed to continue operating a business.
2) Sign-on bonuses.
Common in some industries before the pandemic, sign-on bonuses have significantly grown in popularity amid labor shortages. A sign-on bonus is a lump-sum payment given to a new hire after they sign an employment contract. Employers offer sign-on bonuses to attract staff for hard-to-fill job openings, especially during tight job markets or skills shortages. According to a 2021 report by GlobalData, “Advertisements offering a sign-on bonus have increased across all sectors by a whopping 454%, from 10,312 positions in August 2020 to 57,123 in August 2021.”
SHRM defines this as “a geographic pay differential is an additional compensation paid to an employee to account for variations in the cost of labor and/or cost of living among geographic locations.” More than two years into a pivot to widespread remote work, many companies are still deciding on pay differentials for employees who moved during the pandemic to locations across the country. Setting compensation for remote employees can be tricky. Still, it can also give an employer an edge over the competition in the talent marketplace.
4) A focus on total rewards.
Total rewards are the benefits, compensation, and rewards employees receive from their organizations. This can include wages, bonuses, recognition, workplace flexibility, and career opportunities. What this includes for your employer depends on the job and the industry. Many retailers and restaurant HR leaders found that cash bonuses and flexible scheduling help attract and retain workers. In other sectors, more paid time off or vacation time and a solid benefits package that includes mental health benefits have supported recruiting and retention. The focus from both employee and employer is on the entire rewards package offered to employees.
5) Salary ranges listed on job postings.
There is a growing recognition that salary transparency is a sensible and ethical practice—beneficial to employers and job-seekers. Research reveals that job listings with salary ranges receive more applicants. There is no relationship between applicant quality and posting a range, and it’s required in some states, like Colorado and California. And according to a press release from Indeed, beginning July 18 of this year, nearly every position on Indeed’s site now has a salary — either entered by the recruiter or estimated by Indeed’s algorithm (as long as Indeed has enough data to provide a salary estimate). Before July 18, large employers could opt out of this process, but being a large employer no longer exempts you from having to post a salary range or prevents Indeed from estimating one for you.
While attracting talent with higher wages and broader benefits is good practice, it’s essential to understand what else is happening in the market and how it may impact your retention efforts. “Job switchers” are in the news wherever you look. According to a July 2022 Pew Research Center Report, 60 percent of people saw an increase in actual earnings after they switched employers, compared with 47 percent of those who remained in the same job. According to the study, the median worker who stayed in the same position from April 2021 to March 2022 saw their earnings fall by 1.7% after accounting for inflation. The same survey reports that low pay was the top reason people quit their jobs in 2021.