Employers are scrambling for top talent in a turbulent market. Recent reports published by Statista Research Department show a sky-high inflation rate of 8.3%, baby boomers retiring in droves, and over 47 million people quitting their jobs. So, are companies doing enough to stay attractive to highly skilled workers?
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An easy way to win the talent war would be to increase pay for new hires. But what happens when companies pay new workers more than their existing employees? Does this salary compression cause a staff exodus, triggering another expensive recruitment drive?
In this article, we’ll discuss whether companies should pay new employees more. We’ll also explain how to compensate current staff if your budget doesn’t stretch to a wide-scale salary increase. This way, you can retain valuable workers while attracting new ones.
Should New Hires Be Paid More?
With roughly two vacancies per average unemployed worker, and one out of five employees planning to quit, companies are finding it hard to attract and keep skilled workers according to the US Department of Labor.
Other reasons companies find retaining talent difficult are marketplace trends, such as:
Skill Gap – with rapid technology changes, graduates’ skills can be obsolete by the time they put on their graduation gowns.
Demographics Change – baby boomers are exiting, and Gen Z is entering the workforce; some companies may struggle to find suitable, experienced replacements.
In this war for talent, companies are offering inflated salaries to recruit new hires. But by not raising the wages of current employees to match, they create salary compression.
The pay gap is evident in a study by Pew Research which shows that company loyalty is not financially rewarding, with 60% of job switchers reporting an increase in earnings (after inflation) between April of last year to March this year, compared to only 47% of loyal employees.
So, should companies increase pay for new hires and not raise salaries for existing staff? And crucially, how can employers keep valuable workers in the war for talent?
With high inflation, salaries don’t stretch as far as they did only a few short years ago. Also, Prudential released survey data encouraging companies to be mindful that 71% of Americans looking for a new job would consider staying put for better pay.
So, when employees find out they’re earning less than newcomers in the same positions, what stops them from looking elsewhere? Also, with rising inflation come growing expectations for a salary increase.
In April, Grant Thornton LLP conducted a study of 5,000 workers and found that two out of five respondents expect pay raises more significant than 6% this year. To prevent employees from leaving en masse, reviewing the complete package for existing staff and new hires is a must.
Is it competitive? An easy way to find out is to conduct a salary review of your team’s pay against salaries in your industry, competitors, and overall market rates. Identify pay gaps and adjust accordingly.
Also, beqom’s 2022 Compensation and Culture report showed that 60% of US workers consider changing jobs for greater pay transparency. So be clear about your pay structure.
A Willis Towers Watson (WTW) survey revealed that one in three companies are boosting original salary increase projections, with 74% of respondents citing the tight labor market for increasing budgets.
“There’s a great reprioritization of work, rewards and careers under way, and it’s putting significant pressure on compensation programs for many employers,” explains Catherine Hartmann, North America Rewards practice leader of WTW.
In other words, if you must increase pay for new hires, don’t forget to compensate loyal employees.
Ways to Keep Existing Employees Happy
Engaged workers tend to be loyal. And with Covid measures increasing remote working, technological advances, and Gen Z entering the workplace, employees are becoming savvier. Competing on salary alone won’t cut it. The question is, how can you win the war for talent?
Follow the tips below to ensure you retain valuable employees:
Offer Competitive Pay – In PwC’s Global Workforce Hopes and Fears survey, 71% of respondents said pay was the main reason they quit. Are budgets too tight for a pay increase? Be innovative. Consider discounts on home office furniture or reimbursing commuting expenses. Check out this video on creating an attractive workplace.
Show Transparency with Growth – 61% of employees indicated they’d search for a new job if their company didn’t allow role changes, according to an annual employee retention report by Lever. So, companies should provide visible opportunities for internal mobility. To determine whether employees can move up fast, check with direct management rather than HR to highlight any blockages.
Flexibility for Work/Life Balance – More than 40% of respondents in the PwC survey mentioned above report
ed less satisfaction in their job than those working in hybrid or fully remote work settings (50% compared to 63%). And nearly 75% of Gen Z say that workplace flexibility is the employee benefit they value most. So be flexible by offering a hybrid model.
Place a High Value on Mental Well-being – With 46% of Gen Z and 41% of Millennials reporting in a Deloitte survey that they feel anxious or stressed, prioritize mental well-being by including mental health services in your benefits and providing workplace support for stressed-out staff.
Embody Corporate Values – Gen Z and Millennials are social media savvy, and creating a personal brand blurs the line between work and personal principles. Statistics bear this out. A Deloitte survey revealed, “nearly two in five (37% of Gen Zs and 36% of Millennials) say they have rejected jobs based on personal ethics.”
In short, consider the company’s record on protecting health and safety, workplace diversity, and economic impact to make work more meaningful for employees.
Finally, employers have difficulty attracting top talent in a volatile job market. With salary still the primary reason workers change jobs, competitive packages are a must.
However, retaining talent is cheaper and less time intensive than recruiting new hires.
By offering competitive pay, embodying corporate values, creating a healthy work/life balance, and a clear career path, your company will be well on its way to winning the talent war.
If you’d like to speak to an HR representative about your business, contact us.