Compensation as a Retention Tool
Are You Paying Your Employees Enough to Keep Them as the Market Recovers?
Recent reports indicate that the labor market is recovering from the recession and that MidAtlantic employers are cautiously optimistic about growth and new hiring for 2013. The recovery is putting pressure on employers to retain talent and key employees, and compensation is a key element in retention. The problem comes when employers don’t know how much the market is paying for their jobs.
Knowing the right compensation level for a job becomes particularly difficult when an employer is faced with the all-too-common scenario of an employee demanding more money to stay at a job because he or she has been offered a higher wage by a competitor. While opinions differ on the best way to handle that particular conundrum, one thing is sure: evaluating jobs and paying competitive compensation is the critical key element to avoiding that situation in the first place.
Although money isn’t the primary motivator for employee satisfaction and engagement, studies have shown that compensation and benefits must be at market levels to attract and retain employees. A recent MEA engagement survey asked one organizations’ workers if they had thought about leaving their job, and if so, why? Of the employees who reported that they thought about leaving, nearly 50% of them said the primary reason was pay or benefits.
Unfortunately, the recession forced many employers to freeze salary levels, taking the focus off compensation in the struggle to survive. Now that the market seems to be heating up a bit, employers are realizing that another problem is manifesting: there is a shortage of skilled workers in key positions, which is causing wage levels for certain positions to spike. Those employers who were forced to freeze or cut salaries a few years ago are often finding that they are at a disadvantage now.
An analysis of occupational salary trends using data from MEA compensation surveys indicates that uncertainty has caused the labor market to shift. High unemployment caused a drop in the pay for unskilled positions, but a shortage of skilled workers has caused the pay for other jobs to spike. As an example, a look back at the pay for selected occupations in the Middle Atlantic finds little consistency in salary growth:
|Occupation||Avg. median salary (2012)||% Change (2009-2012)|
|General Unskilled Labor||$12.67/hr||-12.0%|
|Administrative Assistant I||$16.30/hr||-5.0%|
|Mechanical Engineer IV||$88,000/yr||+14.0%|
With the exception of Human/Social Services areas, jobs on the lower end of the pay scale generally have two important items in common: fairly low education and skill requirements and often highly repetitive job duties. These two key considerations are likely to keep median salaries low in the long run, but as the economy begins to recover, even these areas are beginning to realize some salary growth.
So what does this mean for employers?
It is critical to regularly review the pay for your company’s positions to ensure that you are paying competitively. Talent shortages and pay spikes mean that the old practice of giving a 3% increase across the board or adjusting a salary structure by 2% each year will not work any longer.
Companies who take the time now to identify deficiencies in current pay practices will be at the advantage when the economy really heats up and the employees who were hesitant to look for another job do so. Organizations that adjust their pay strategies now will benefit as the recovery really takes hold.
MEA offers several tools to help employers evaluate pay: our 2013 Wage and Salary surveys offer regional data for over 400 jobs. Additionally, our Compensation Consultants can help analyze the pay for your specific positions and pull market data from one of the dozens of purchased national surveys to design a pay system that will work for you.