Are you Feeling The Squeeze? - A Closer Look at Employee Compensation

Are you searching for new talent in your organization? Do you have open positions that need to be filled yesterday? Hiring new employees isn’t always as simple as putting up a job post, clicking through resumes and scheduling interviews. There are many factors you need consider before heading over to Indeed or LinkedIn. And one of those important factors is compensation.

Today’s tight labor market results in higher starting salaries than in the past. The US has seen current wages increase 5% in the past year, up from 2.8% in 2020.1 How does this new rate compare to that of current employees? Are businesses paying more for less experience and skills?

Salary compression happens when organizations hire inexperienced talent at slightly lower rates or at similar pay rates to what those currently in the organization – with more responsibilities, skills, and experience – are making.

Compression is uncomfortable.

• No one likes paying ‘more for less’, especially when it comes to talent.
• Current employees may learn of newer employees’ pay rates and become disgruntled.
• Many are still recovering from the financial losses of the last two years. And everyone is feeling the 7% rise of inflation.

If you are ready to hire someone, you need to take several fruitful steps.

• First, look at your current pay structure. How do your wages compare to the market rate? Not sure where to look? Start on online job boards. If your wages are lower, is there anything you can do to bring them more in line with other employers? Your employees are loyal, but rising inflation is affecting them at home.

Conference Board research shows many companies are planning to give raises this year. Coupled with higher pay for new hires, they predict an average 3.9% increase in wage costs for employers.

• Second, whether you increase salaries or not, you should meet with each employee and communicate the research, its outcome, and your hiring plan. You can take this time to let each employee know what specific and unique contributions they make to the organization – using examples and outcomes. And then ask questions about other ways the employee wants to contribute to the organization.
• Third, you can also use this time and ask employees for their opinions about workplace improvements, policies, or benefits they’d like to see in the future. There may be an appropriate idea that is easy to implement immediately. One survey of 1,500 full-time US employees found that 51% would give up a salary increase of up to 20% for increased flexibility in when and where they work.2
• ?Finally, with your pay structure identified and the job description finalized, you can identify a maximum salary you are willing to pay someone in this position. Be sure to confirm it’s in line with the market and your current pay structure, and then STICK TO IT - no matter how enamored you may be with a candidate.

The best short-term defense to minimize compression is developing a hiring plan and sticking to it. Your long-term strategy includes contributing resources to a compensation plan your current employees want and are willing to work for. And now you can be sure that the “juice was worth the squeeze.”

Author: Angie Bandy, Manager of HR Consulting

1 SHRM.com

2 Grant Thornton.com