The U.S. is experiencing a significant cost of labor increase, with the Bureau of Labor Statistics reporting that total employee compensation and benefits rose 4.5 percent year over year since last March and 1.4 percent in the first quarter of the year alone.
What’s behind this trend? Many workers are seeking higher pay to keep up with rising inflation, and they also have the upper hand in the job market due to ongoing labor shortages that are putting talent at a premium. When employers are struggling to fill roles, applicants feel more empowered to seek greater compensation and benefits than they may have previously.
Not only are today’s workers demanding higher pay, they’re also not afraid to quit their jobs to get it. A Pew Research Center survey found that “low pay” was one of the top reasons people quit their jobs in 2021, while an even more recent survey found that seeking higher pay was the number one reason people said they would leave their employer.
That’s why it’s more important than ever to have a well-designed compensation and benefits package that’s as competitive as possible within your labor budget. Without the right strategy in place, your business could be falling behind in the battle to attract and retain talent.
If it’s been a while since you’ve evaluated your compensation and benefits, now is the ideal time to revisit it to ensure you’re keeping up with the cost of labor increase. Here are five tips for enhancing your strategy so you can hire more qualified candidates, improve employee motivation and loyalty, and reduce turnover.
Five ways to step up your compensation and benefits strategy
Step 1: Determine the market rate for roles in your organization
Start by conducting a salary market analysis to define the market value of your positions. There are many tools available to help you accomplish this, including online salary tools and data on industry websites, the U.S. Bureau of Labor Statistics, or even just researching what type of compensation your competitors are offering in their job listings.
However, not only is determining the market rate for salaries very time consuming, it’s also difficult for those not trained or experienced in interpreting the data. To save yourself time and money in the long run, invest in a compensation analyst upfront who can conduct an in-depth analysis to reveal how your salaries compare to others in your industry or region.
Step 2: Evaluate and adjust your pay structure
Next, use this data to assess how your current salary or wages compare to the market rate for similar jobs to make sure you’re not paying too much, or too little, for each role. Identify which could use an adjustment to help your business successfully compete for talent or cut costs.
Budgets are tight these days, so you may not be able to offer pay raises for all positions. If this is the case, select key roles to adjust first, and then prioritize the remaining positions by level of importance (not necessarily seniority). Don’t forget to clearly communicate the reasoning behind any changes to your employees.
Step 3: Include attractive benefits and perks
Benefits are an essential part of your overall compensation strategy, so choose wisely. In a recent WTW survey, 60 percent of respondents said retirement benefits were a leading reason for remaining with their current employer. Additionally, 59 percent said they would “pay more for enhanced retirement benefits,” and 46 percent said they would even accept less pay for a better healthcare plan.
Below are some common cash and noncash benefits to consider:
● Medical benefits
● Life insurance
● Retirement (401k)
● Paid time off (vacation and volunteering)
● Paid sick leave
● Paid holidays
● Profit sharing, bonus or commission pay
● Family and parental leave
● Car or vehicle allowance
● Cell phone allowance
● Education reimbursement (including paying student loan debts)
● Flex time
● Casual dress code
● Career development and training programs
● Private office space, or an office with a window
● Team building opportunities
● Volunteer program (time off without pay)
● Special equipment (new laptop, cell phone, tablet)
● Employee recognition programs
A great way to decide what benefits to offer is to survey your employees and find out what they prefer.
Step 4: Stay apprised of trends in compensation and benefits
Once you’ve designed your ideal employee compensation and benefits package that’s competitive, in budget, and in line with the cost of labor increase, your job still isn’t done. You’ll also need to periodically evaluate your benefits, conduct an annual salary market analysis, and adjust your strategy accordingly. Select a point person in your organization (ideally an HR representative), or work with an HR consultant or benefit broker who can help ensure you’re staying up to date on changing compensation trends.
Step 5: Conduct regular pay equity audits
Offering higher pay to keep up with the cost of labor increase and compete for talent can result in pay compression (discrepancies between new hires and more senior staff) or other pay inequities, whether intentional or not. Regardless of the reason, unaddressed disparities can leave you open to fines and discrimination lawsuits. That’s why it’s critical to conduct annual audits to ensure your staff is being paid fairly and in compliance with the law. Making pay equity audits a regular practice will not only help your business successfully compete for talent by attracting and retaining top performers, but also avoid costly penalties and litigation, and encourage greater equity in your organization.
With market conditions shifting so dramatically, the most successful businesses today will take a proactive, dynamic approach to employee compensation and benefits.
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