How to Optimize Your Salary Budget to Retain Talent in 2018
According to the latest Employee Job Satisfaction and Engagement Survey from the Society for Human Resource Management (SHRM), 61% of employees say compensation is “very important” to them. However, only 26% said they are “very satisfied” with their current compensation overall.Slow wage growth, fear of layoffs, and other recession-era concerns are gradually fading as cumulative economic improvements drive increased confidence and competition, especially in leading tech-driven markets. Looking ahead to 2018, it’s likely that more organizations will be focused on seizing opportunities—and making targeted investments to capture their share of global economic growth. (How) will this translate into faster salary growth? Below, we’ll examine some expert predictions for the year ahead.
Analyzing Compensation Trends, 2016-2018
According to the U.S. Bureau of Labor Statistics (BLS), the average hourly wage earned by American workers increased by about 3% during 2016, reaching $26/hour. A former SHRM analyst said the reason for rising wages is simple: in a tightening job market, employers need to increase compensation to retain skilled workers and compete for new talent.There has also been a series of new state and local laws raising the minimum wage in certain areas throughout the country, but these developments are expected to have a minimal impact on higher professional-level salaries.A recent report from the Economic Research Institute projected that U.S. salary growth will accelerate in 2018, increasing 3.2% as the unemployment rate continues to drop and business confidence improves. Worldwide, ERI predicts salary increase budgets will grow between 2% and 5%, with the strongest growth occurring in emerging economies such as Brazil, Russia, India, Pakistan, and other countries throughout Asia. Meanwhile, developed economies in Japan and the European Union will see smaller increases in the 2% to 3% range. The only expected declines are in a few economically troubled nations in South America and the Middle East, although ERI notes that political and financial risks remain pervasive globally.
Considering Benefits and Total Compensation
It’s critical to bear in mind that wages aren’t the only form of compensation for most professionals, and companies need to factor in the cost of benefits such as employer-sponsored health insurance. For example, rising premiums must either be passed on to employees—reducing their total compensation—or paid by the company—which could limit the amount of money available for salary increases. For additional context on this point, SHRM’s survey found that 56% of employees consider benefits very important, but only 31% are very satisfied.Other, less tangible factors that can be considered part of employees’ compensation include everything from training and career opportunities to the available amenities and overall quality of the company’s workspace. Even in the age of mobility, it’s clear that many employees place a high value on these aspects of work life.
Tips for Optimizing Your 2018 Compensation Strategy
Investing in salary increases is essential to retain skilled workers and attract new talent. But deciding when and how much to increase an employee’s pay is often complex. It’s both an art and a science, requiring a mixture of data-driven decisions, personal communication and negotiation.It’s important for managers to understand how their employees feel about their current compensation, their expectations for the future—and their options in the job market. If a skilled employee believes they can’t get a raise from their current employer but can find a higher-paying job, it’s only a matter of time before they start searching—if they haven’t already.Today, managers have a variety of options available to keep up with salary trends in their industry, including:
- Networking with peers to identify trends and discuss strategies for finding the right balance between providing incentives and controlling costs
- Utilizing salary and job market data from websites such as the BLS Occupational Outlook Handbook and Glassdoor
- Having open, ongoing discussion with employees to understand how current pay levels are perceived and how expectations are evolving
By staying up to date on changes in the marketplace and working with employees to understand and manage expectations, company leaders can make targeted investments in salary increases, benefits provisioning, and other aspects of compensation that affect recruitment and retention. In turn, building the optimal workforce will position organizations for success in an improving but uncertain global economy.Dive deeper into the latest developments in payroll management.Discover the latest workforce management trends across all areas of the enterprise.