Enhancing internal competitiveness while also maintaining internal equity
Question: Recently, we lost some good employees to competitors, and we are having difficulty finding qualified candidates to replace them. The salary expectations of the candidates are higher than what we are paying current employees. How can we be market-competitive with compensation while still maintaining internal equity?
Answer: This is a challenge for many organizations when trying to control payroll costs while also trying to keep up with market rates year-over-year — but there are ways to rectify the situation.
First, it is important to do some analysis to understand the full scope of the issue. Ensure your organization has updated job descriptions and job evaluations, and get current market data to adjust the salary ranges (pay bands/grades). Then, do a gap analysis to identify the amount and percentage salary increase required to bring employees up to the midpoint.
One-time market adjustments
One of the quickest ways to get an organization back to being market-competitive is to implement a one-time market adjustment to salaries to bring all employees up to the salary midpoint, as per the gap analysis. Be aware of other issues this may create, such as rewarding poor performers or demoralizing those who do not receive a market adjustment, especially those with long service.
To mitigate these issues, consider providing it as a flat-rate, companywide increase, and exclude poor performers or newer employees. Alternatively, the market adjustment could coincide with the annual merit increase cycle so employees flagged for the adjustment would see one larger increase encompassing the market adjustment and merit increase.
Other options could include limiting the market adjustments to certain groups of employees, such as core business positions, hard-to-fill positions, certain regions or business units, “at risk” employees or top talent.
Other compensation tools
Consider offering other compensation in addition to annual salary. Target-based incentive plans can help to motivate and engage employees and will help to attract strong candidates who may feel more in control of their earning potential when incentives are offered. Also, the organization does not pay the incentive if the targets are not achieved.
The employer can also increase its contributions to employees’ retirement plans, provide (greater) education assistance, pay for gym memberships in whole or in part, increase employee discounts, and implement third-party partner discounts.
However, if these alternatives are not highly valued by the employees, then they will not achieve their desired effect.
Implementing a hiring range
Depending on how large the wage gap is, the company may want to implement a hiring range for new employees. This would start at the minimum of the pay band (grade) and have a sufficient range to allow for some negotiation with candidates without exceeding the salary of existing employees with at least one year of service. The hiring range will provide existing employees with reassurance new hires are not being paid more than them, and show candidates that loyalty and strong performance are properly rewarded.
Rewards, recognition programs
Having an assortment of rewards and recognition programs can help to increase the company’s market competitiveness without having to increase salary costs. The rewards can be financial (such as gift cards or small bonuses), or non-financial (such as premium workspace or first pick for upcoming projects).
With recognition awards, such as service anniversary awards, employee-of-the-month awards, and thank-you cards, employees can see their efforts are being recognized and appreciated, and are more likely to stay, as well as be more motivated to achieve positive results.
Enhancing the value proposition
Consider enhancing the value proposition by increasing the employee benefits offering, or providing additional vacation time or other paid time off. Free parking, public transit discounts, free or discounted on-site food service, on-site gyms, and work-from-home options can also help entice employees and candidates (however, be mindful of the potential tax consequences).
Whichever method you choose, it is vital to communicate any changes to employees and get their feedback. The more employees understand how their pay is determined, the more content they are with their pay. Employees who see how their work is rewarded tend to be more engaged and more productive.
Finally, recognize that employees may leave anyway. More than likely, pay is not the only reason good employees are leaving, so a company should make the effort to determine what other reasons are causing employee turnover.
Janet Russell is an HR practitioner and compensation expert based in Toronto. She can be reached at firstname.lastname@example.org.