2020 has been a year of polar opposite reports about compensation from our clients. Some have implemented hiring and pay freezes, even laid people off, while others have more business than they know what to do with and are concerned they are losing people because their wages are not competitive with the market.
So, what do you do if you are concerned about the market competitiveness of your wages?
- First, decide if you haven’t already, what your wage strategy is. Do you want/need to lead, lag, or meet the market? Knowing your destination before you take the journey is important. Several things weigh into this such are your budget, margins, industry, location, culture, and overall philosophy on compensation. There is no right or wrong answer, but the key thought in all this should be what creates a competitive advantage for your organization.
- Pull market data. Here is some information on sources for data. Not listed in this post as a source that we like to use now is Economic Research Institute (ERI)’s Salary Assessor. One of the things we like about ERI data is you can pull it by level (1,2,3) and by job title, which can help you hone in on comparing apples to apples with your organization’s wages. We suggest utilizing multiple sources.
- Based on your strategy, determine what is most important for you to focus on looking at the market data. If your strategy is to lag the market, look at the 25th percentile of market data as a benchmark. If your strategy is to meet the market, look at the midpoint (50th percentile) and an average of the data, and if your strategy is to lead the market, look at the 75th percentile of the market data for benchmarking.
- Ask yourself: Are you out of line with the market and your strategy?
- If you are below the market and your overall goal, consider how you can best bring your wages up and within the range of your market data. This could be a one-time salary increase for certain or all positions, a percentage increase across the board in your pay ranges/salary structure, or consideration of a variable pay system that includes other forms of compensation than base pay to bring your overall compensation in line with the market. Variable pay structures can help you bring in other considerations for payout like your overall profitability.
- Consider non-monetary rewards that align with your company’s culture and philosophy. Based on research, flexibility may be more valuable to people than monetary rewards. Can you implement more flexible work policies that combat recruiting and retention issues because of less than average wages?
- If wages are out of line with the market and your organization can’t meet the market in a way that aligns with your strategy in one overall step or change, consider a phased-in increase to your overall salary ranges across a set period of time like every six months or every year. This can be a way to move your overall comp strategy (not just a position here or there) to get to where you need to be.
- Evaluate your wages against the market more often. The organizations we see with the most trouble with their wages not meeting the market are ones that have gone five years or more without comparing their salary and structure to the market. The more you lag behind, the harder and harder it becomes to catch up. We suggest looking at overall compensation structure adjustments every two to three years unless there are large fluctuations in the market in a short period of time. You should look at individual wages for specific jobs more often, every year or so, especially if you are experiencing retention and or recruitment issues.
Do you need to take a look at your wage competitiveness?