Competing For Talent? Four Tips For Today’s Hot Job Market

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The job market is tight and workplace norms that we once took for granted — dedicated office space, company culture and compensation — are now in flux. Visionary leaders are using compensation as a competitive advantage. From startups to multinational conglomerates, firms are considering pay and overall compensation to better position themselves in an increasingly competitive labor market.

How can your business compete against those with deep pockets for compensation? Here are four essential considerations to retain existing talent, attract new staff and prioritize transparency around employee compensation.

1. Consider the principles of supply and demand.

Most organizations fail to consider the principles of supply and demand when determining their compensation strategies. Demand should be the driving factor influencing pay. Right now, we see increased demand and low supply driving wage increases. Consider, for instance, the tremendous demand for data scientists compared to accountants. This demand means that the rate of compensation for data scientists has increased much faster than what accountants (and many other positions) are experiencing.

Supply and demand determine the proper compensation at any given time. In some industries and positions, supply is always short, such as software engineering. In others, supply exceeds the demand, resulting in either stagnant compensation costs or a decrease in compensation. Regardless, not all positions have an increase in compensation year over year.

Instead of applying these basic economic principles, employers take less effective approaches to addressing compensation. Some take a reactive approach, waiting until valued employees complain about pay, at which point they give raises. But waiting until employees ask for a pay raise can backfire and increase turnover. Many people simply aren’t comfortable asking for an increase. Instead, they’ll begin a job search and move to a company that will pay them more.

Another misguided approach that companies take is making cost of living adjustments (COLAs) the focus of compensation increases. COLAs are problematic because inflation doesn’t directly correlate to salary or overall compensation. And COLAs assume that all labor is created equally, giving the same amount to high-demand and low-demand roles, which make it difficult to hang onto high-demand talent over time. COLA increases can also result in over-compensation if wages for those roles aren’t increasing in the market.

2. Know your compensation strategy.

To successfully recruit for talent in a hot job market, you need a compensation strategy that addresses how you’ll stay competitive for talent. The number one thing to consider is how your compensation stacks up against other companies in your industry.

For instance, if you want to hire superstars, you’ll need to pay them like superstars and offer the highest compensation. If your budget doesn’t allow that, you should decide where your compensation will fall. Will it be above average, at the median or below average? Where you fit along this continuum will determine how much of the current labor market you’ll be able to attract in addition to the skills and capabilities that candidates possess.

If you pay within a higher percentile, say the 60th percentile, then roughly six out of 10 people most likely choose to work for you over others because you’re paying more than 60% of all job seekers. Note, though, that the remaining 40% of individuals out of your range are more likely to have higher qualifications and skills than those you’re targeting. It’s still possible that they may leave you for a higher-paying job in the future, but there’s only a 40% chance.

You can also make up a salary gap with other non-cash perks and benefits that the employee may value. Even though cash is important and the primary motivator for most people, it’s not the only thing that employees value. Ultimately, it’s about ROI. Also, the percentile you choose can and should be different for different positions.

3. Compensation is more than cash.

As mentioned, for many people, money isn’t the sole factor in accepting a new job. Given this, you need to consider your total compensation package, which extends beyond bonuses or health care and retirement benefits. How employers treat people, how much access people have to management and senior leaders, how employees feel about the office environment, culture and values and even the product or solution you provide are essential to most candidates. Many people want to work on things that are meaningful and will make a difference in the world.

As you consider compensation, it’s vital that you think about the mentoring that your company will provide to employees to help them grow personally and professionally. Managers have significant influence here, helping or hindering the development of those they manage. Increasing a worker’s skills directly increases their compensation, as they rise higher in the wage spectrum. Make sure you also increase their compensation based on where those skills are relative to the market.

4. Be transparent.

Traditionally, managers have encouraged employees to keep quiet about compensation, but it’s easy for employees and job candidates to find and share that salary data anonymously on websites or chat forums. Given this, it’s best to be transparent about compensation. Take the time to explain how you structure compensation, determine pay ranges, calculate raises and provide incentives and then invite candid feedback from your employees.

Above all, empower and encourage your managers to make fair compensation decisions that invite retention and optimize recruitment. They’re the first to know when employees start looking to leave and are your first line of defense in combating compensation-based attrition.

Now’s the time to rethink, re-engineer and realign your organization’s compensation programs. When done right — and right now — these are steps that can pay for themselves.

Reposted from Forbes