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By Kaitlyn Knopp, Co-Founder & CEO, Pequity
In response to the Great Resignation, worker shortages, and general upheaval in the talent market, more employers are raising compensation. According to recent data from the National Federation of Independent Business (NFIB), 44% of small businesses surveyed said that they are raising their compensation for employees, up 2 percentage points from September and marking a new 18-year record.
What does this mean for your organization? Should you consider raising compensation along with the latest trends, or hold the line to keep your costs manageable?
Let’s take a closer look at a few trends that are driving this recent increase in compensation, how the compensation battle might play out for tech companies in today’s highly competitive climate. There are a few reasons why your company might need to go along with raising compensation, even if it feels painful to the bottom line in the short run.
Top Talent Have More Options Than Ever
In my entire career, I have never seen a talent market that is this competitive. People are getting offers left and right, people are getting recruited out of jobs where they are otherwise happy and well-paid, and the big shift to work from home and remote work is looming over everything. Simply put: today’s top tech talent have never been more in-demand. If you don’t pay your people well, at competitive market rates or even above market, your competitors will.
People are Burned Out on the Pandemic
The Great Resignation is also a Great Reassessment. People are re-evaluating what they want to do with their lives after feeling stressed, scared and exhausted through the past 18+ months of lockdowns and quarantines and travel restrictions; some people are changing careers, changing industries, or stepping off the fast track altogether. People are spending more time with their families and focusing on hobbies or caregiving responsibilities. The biggest increase in resignations is not happening among mid-career talent, who are in the age range (30-45) when many people might be raising children or caring for older loved ones.
We’ve all seen the social media memes about “no one wants to work anymore;” it’s a humorous exaggeration, but burnout is real, and it’s affecting people at all levels of life and all kinds of pay ranges. Especially for higher-paid professionals who might have saved up a decent nest egg while stuck at home during Covid, your next salary offer might need to be extra compelling to motivate them to take the job.
Remote Work has Expanded the Talent Pool…But Not Reduced the Cost of Labor
It’s true that remote work has made it possible for employers to hire digitally savvy knowledge workers in any location. But if you’re trying to hire and retain the most in-demand top talent that a tech company needs most, you still might be struggling to find the right people for the right jobs. If you’re trying to build a world-class company, the supply of world-class talent has not expanded just because everyone’s working remotely. Some people might have moved away from your high-cost headquarters in San Francisco or New York, but still expect to be paid the same salary even though they live in Boise or Boulder now. Compensation in a remote world is complicated.
Pay Equity and Pay Transparency Tends to Favor Higher Compensation
Companies want to pay people fairly while still staying competitive and managing their costs, but recent trends toward greater pay equity and pay transparency are likely to contribute toward higher overall compensation. If your company runs a pay equity test and finds out that you have unintentionally been underpaying someone or are having discrepancies within a team, you might need to adjust pay upwards to compensate, rather than cut someone’s pay. Big states like New York and California have progressive pay transparency laws, which make it easier for people to check and make sure that they are being paid equitably for doing the same work as their peers.
Fair pay and a greater level of pay transparency are good for society and the right things for companies to do. And in the long run, companies that are more transparent about pay can help to avoid misconceptions, misunderstandings, and hard feelings around compensation.
How to Adjust to a Higher-Cost Compensation Reality
Organizations still need to stay competitive in the market, even though they love their people and are happy to pay well. So how can hiring teams and HR leaders adjust to the new expectations of this higher-cost world of compensation?
- Get flexible about hiring: In the new world of remote work and Great Reassessments, many people might want a flexible schedule and less time commitment to a job; look for opportunities to fill your roles by hiring freelancers or contractors.
- Bring in more entry-level talent: One surprising trend among the talent shortage is that employers are expecting more skills and experience from “entry-level” roles. Many recent graduates have struggled to find their first job, even while employers scramble to fill their positions. Your compensation strategy can be part of solving this challenge; are you being open enough to entry-level hires?
- Develop talent internally: Are you willing to train and develop people who might not have all the right experiences, but are eager to learn? Developing and promoting your current talent pool can be a win-win; your employees get career growth, and your organization gets great people (who already love your company and know your culture) into higher-impact jobs, without the costs and risks of hiring away talent from other companies.
- Double down on Diversity, Equity & Inclusion: Many people from underrepresented groups are still not getting a fair chance in the hiring process. The same communities that are undervalued by other employers can be your company’s biggest source of value-creation.
- Pay more now to avoid paying even more later: What does it cost to lose a candidate because you wouldn’t go 10% higher on a salary request? What if you hire someone who’s “cheaper” today, but that new hire doesn’t work out, and then you’ve wasted half-a-year’s salary on training a person who didn’t stay? Keep in mind the total costs of compensation are more than just hiring and retaining one person; it’s about the overall effect on the organization when talent isn’t the right fit and leaves too soon.
Bottom line: at Pequity, we believe in paying people fairly, and based on the latest market data and trends, we believe there is going to be a continuing shift toward higher compensation. The talent pool has a lot of leverage right now, and they are using it. But the good news is, employers still have options to find the right people, keep them happy at their jobs, and build a stronger, supportive compensation culture. Higher compensation doesn’t have to be scary; it’s just the next evolution in how companies collaborate and create value, but on terms that are hopefully going to be a bit more employee-friendly and fairer for all.