Compensation Planning in the Current Environment
Two headwinds are hitting employers and the headlines right now: inflation has reached a 40-year high and Inc. is reporting that 45% of workers are looking for a new job.
Employee churn is top of mind for every one of our clients and other leaders as organizations struggle to balance salary and benefit offerings against resource availability. Those precious and (likely limited) benefits dollars should be getting a fresh look for relevance as well as value. By understanding how inflation is impacting the buying power of workers’ take-home pay—and what you can do to better align with employee needs—your organization can improve talent acquisition and long-term retention.
Inflation's Impact on the Workforce
In 2021, more than 47 million employees left their jobs, according to CNBC. Between April and August 2021 alone, workers resigned nearly 20 million times—a rate 60% higher than during the same period in 2020. Although this mass exodus can be attributed in part due to the pandemic and the widespread shift to hybrid- and remote-work environments, many employees have cited the same demand: higher wages. We can argue about if this was the real reason or not, and I think there’s plenty of evidence from our recruiting friends to suggest that it’s a cop-out answer, but let’s roll with it for now, especially since the cost of living increase is about to be the easiest reason employees can cite for asking for a raise.
Consumer prices rose 8.5% year-over-year in March, the highest inflation rate since 1981 as reported by the U.S. Bureau of Labor Statistics. This is a continuation of the same trend since the end of 2021; inflation is gradually reducing the buying power of employees’ take-home pay. In fact, in a survey of workers done by staffing firm Robert Half, almost two-thirds (62%) of respondents plan to ask for a raise this year, with the top reasons being:
To adjust for the higher cost of living.
To reflect current market rates.
To account for additional job responsibilities.
Of those surveyed, individuals who do not receive a raise reported that they will either revisit the conversation, look for a new job, or expect additional benefits. As these employees continue to seek new opportunities, existing workers and talent teams will be left to manage the costly impact of high organizational turnover.
What Employers Can Do To Adapt
Traditionally, the bulk of compensation planning has focused on creating a guiding strategy to help leaders establish an objective and fair approach to pay. In doing so, organizations could quickly scale this framework as new employees joined and the marketplace for talent evolved. This is still valid! Today, however, a comprehensive and effective compensation plan ALSO has to address more than just pay. To give your organization a competitive advantage in the talent market, you will need to look further than salary and incorporate additional benefits and perks that the modern employee has come to expect. And I’ll tell you right now, no one wants your unlimited vacation or your ping pong tables and other nonsense perks.
Some factors to consider include:
Provide Professional Development Opportunities
Although workers are looking for higher pay and more frequent raises, they are also attracted to job offers that provide continued growth, training, and education. As Inc. reported, those who left their positions during the Great Resignation for reasons other than pay often cited a lack of learning and development opportunities as one of their biggest motivators. Companies should map out strategies to streamline and promote internal mobility efforts.
Reevaluate Retirement Benefits
More than 8 in 10 employees (82%) say their benefits—specifically their retirement benefits (77%)—are highly important in deciding whether they will change jobs, according to TIAA’s 2022 Employee Retention Survey. And this comes as nearly a third of employees say they are considering leaving their jobs this year.
As companies look for ways to differentiate themselves, 16% of large and mid-size U.S. employers are planning to raise 401(k) contributions or reinstate a contribution match this year, according to a survey conducted by investment-consulting firm Callan LLC. That’s fine, but what is most helpful, according to 7 in 10 in the TIAA survey, is education on retirement savings planning and understanding their plan’s investment options. See more below on financial wellness.
Often, middle and rising management are the key players and glue that hold the organization together, in addition to the executives. Designing a non-qualified deferred compensation plan that ties back to performance or company metrics can help with recruiting and retaining key management or executives. Tandem cash balance plans for companies with healthy balance sheets can also be an attraction tool in an environment where the pension plan has gone the way of the dodo and the organization has stable cash flow.
Help with Higher Health Costs
Inflation has not only impacted daily goods and living expenses but also longer-term financial concerns such as health care. “The cost of employer-sponsored health insurance increased by 6.3% in 2021, the highest increase since 2010,” said Jessica Du Bois SHRM-CP, Vice President and Benefits Consultant at Risk Strategies. Investing resources in expanding wellness-focused benefits can help to offset the impact on your employees’ take-home pay while putting less of a strain on your organization's resources. For example, the employer-paid portion of health insurance premiums is not considered income taxable to employees at the state and federal levels, so a dollar invested in health care goes further than a dollar paid as direct compensation. “Another health care strategy for employers is to negotiate with high-quality providers on a direct contract basis. This solution can provide employees with better coverage at a lower, negotiated price,” said Du Bois.
Additionally, it has also been found that when employees are less worried about health-related concerns outside of the workplace, productivity benefits.
Employee Well-being
Many of the temporary adjustments made during COVID are being reworked to become permanent policies. In a survey by the Society for Human Resource Management (SHRM), respondents shared that their companies continued to expand benefits across five key areas:
Employee options for telework (78%)
Telemedicine services (43%)
Leave to care for children (39%)
Leave to care for adult family (27%)
Mental health services (25%)
However, across these core benefit offerings, one of employees’ most highly desired might just be the most overlooked: financial wellness and education. When employees feel secure in their financial future, it not only translates to better mental health, but also produces higher productivity, increased innovation and stronger collaboration in the workplace. In fact, our VERY FAVORITE budgeting software, You Need A Budget, has launched an employer-provided financial wellness offering that we plan to use as a springboard within our proprietary wellness offering.
Planning for Your Organization’s Future
Even the most experienced employer can feel overwhelmed when it comes to reassessing existing compensation plans through the lens of the modern talent landscape.
If you are in need of additional support as you reevaluate your current salary and benefits offerings, it may be time to get some new ideas from an outside advisor. For more information about compensation and benefits planning, don’t hesitate to connect with us today. (And if we can’t help with the particular topic, we know who can.) We’ll be happy to weigh in on your retirement offerings and have a seat at the table with your other benefits advisors to hash out where those benefits dollars should go for maximum impact.