If You Can't Boost Wages, Try Better Benefits

Total Compensation

The Death of the Pay Raise
Part 4 of a four-part series.

The responses "reveal a workplace that remains characterized by low wages and high pressures and where many still feel expected to meet high-performance goals, but where criteria for bonuses or advancement has become even more unclear," the report authors wrote.

In the words of one employee, "I don't know how [my bank] … has record profits, while they put caps on our bonuses and raise the percentages we need to get [productivity] credits. I make $33,000 per year … the same as what a banker did in the 1980s."

Employees clearly need their companies to explain why—despite all the recent good news about the economy—their wages have remained relatively stagnant seven years after the end of the Great Recession. If they don't get those explanations, or higher pay, HR experts say, they may soon be gone.

And the news about flat wages is pretty consistent: Several consultancies that conduct annual pay surveys all predict minimal average annual salary increases. For instance, according to Mercer's 2018/2019 US Compensation Planning Survey, salary increase budgets for 2018 are 2.8 percent—reflecting no change from 2017—and projected to be only 2.9 percent in 2019, despite a tightening labor market and a high rate of workers voluntarily quitting their jobs.

"Unemployment is falling. Job openings are increasing. Employees are gaining confidence in the labor market. Yet companies are still not investing in base salary, even though it's the reward employees value the most," said Mary Ann Sardone, a partner at Mercer and the firm's North America rewards practice leader. "While employers initially responded to the tax rate drop [signed by President Donald Trump] with one-time spot bonus awards and some proactive minimum-wage increases, little of this money is being invested in the annual pay increase."

[SHRM members-only Express Request: Salary Increase Projections 2019]

Lynn Reaser is chief economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University in San Diego. She insists that when discussing stagnant wages with senior managers, HR professionals "definitely need to have a stronger voice."

"Lagging wages not only are causing increased job hopping but are in many cases adversely affecting morale and work efforts," she said. "This has become increasingly apparent to [HR] as quit rates at companies rise and it is becoming harder to fill vacancies."

HR as Employee Advocate

If HR professionals hope to address the demoralizing effect that stagnant wages have on workers, their first—and perhaps most daunting—chore is to gain a sympathetic ear in the C-suite, agreed Tim Low, senior vice president for marketing at PayScale, a compensation data and software firm. Low believes it is HR's duty to bring to leaders' attention how low- to middle-income workers' pay has not reflected the last few years' strong business profits and surging financial markets.

"If HR wants a seat at the table, part of their value can be to make sure that the rest of the executive team is made aware of exactly these types of macroeconomic circumstances that can dramatically impact attraction and retention," Low said. "It is so easy to lose track of market dynamics and find one's self underpaying very valuable employees. We need help from HR to embrace fairness."

So how should HR frame the issue to executives? 

Boldly, according to a joint comment from Bruce and Blair Johanson, principal partners at DBSquared, a compensation software firm based in Fayetteville, Ark.

"HR needs to speak to leadership with the saying, 'Pay me now or pay me later,' and help management see the consequences of not budgeting some form of increase in tight years," they said. "We have seen several organizations get behind the eight ball when they don't keep their pay structure current with the market and [don't] provide adjustments in pay to their people."

In addition, HR needs to convince leaders that their focus shouldn't be only on wage increases for workers in high-demand jobs, such as technology and communications, said Pete Sanborn, Atlanta-based managing director for human capital advisory at consultancy Aon Hewitt.

"We know that there's been a much more significant wage increase for skills that are in demand," he said. "These high-skilled roles are ones that HR pros are [too often] looking at, so they come up with strategies for increasing wages" for only those workers.  

But what if a company's leaders insist that they really can't raise wages? What's an HR professional to do?

It's Not Always About Pay—Really

It may sound cliché, but providing other benefits and perks may be precisely what's needed to keep a valued worker on the job, even without a pay increase.

Plenty of workers have traded higher pay—and even taken substantial pay cuts when accepting a new job—in exchange for a lifestyle that helps them balance their work and personal lives, which can include the ability to work from home, flexible hours to avoid bad commutes and increased vacation time.

"Flexible work options don't cost a dime, but not offering flexibility could come at a very high cost in terms of turnover, retention and the ability to recruit top talent," said Mika Cross, vice president of employer engagement and strategic initiatives at FlexJobs Corp. in Boulder, Colo. Such an approach, she acknowledged, "will necessitate a higher degree of creativity and innovation on the part of HR and company leaders."

It also doesn't cost much to regularly show appreciation for a job well done, said Low, who noted that managers too often underestimate how satisfying such accolades can be.

"Encourage managers in your organization to get into the habit of providing timely and positive feedback," he said. "Employees need to hear the message that their work is seen and valued. They need to understand and feel that the company understands how their work contributes to the company's mission."

Other options include reimbursement for child care expenses and parental leave beyond that required by federal or state laws, Reaser said. She cautioned, however, that workers without children could consider such benefits discriminatory, so it behooves an organization to consider nonwage benefits for those without children as well.

Profit-sharing plans, tuition reimbursement, enhanced health care benefits and retirement incentives are other options, Sanborn said.

Preparing Workers for Future Roles

For low-skilled workers whose jobs are at risk of being replaced by automation, employers need to "implement policies that support workers' desire to move up by providing on-the-job training and ensuring regular and sufficient hours to facilitate training and educational opportunities," said Anastasia Christman, a senior policy analyst and director of research at the National Employment Law Project.

Germany has been a leader in reskilling workers, Sanborn said. Manufacturing employees there receive training to shift from working on the assembly line to controlling new technology that performs that work.

"The German government actually provides pay for those who've lost jobs and works with companies on training [former employees] with skills needed for the future," he said.

The Atlantic noted that while fewer than 5 percent of young Americans train as apprentices, nearly 60 percent of young people in Germany are being trained in "fields as diverse as advanced manufacturing, IT, banking, and hospitality."

The automotive industry in the U.S. is doing something similar, Sanborn said. As robotics replace manual and assembly jobs, automotive companies are retraining workers to operate the machines that perform those jobs.

Be Honest

It may be helpful to conduct "stay interviews" with top performers and to ask what outside job opportunities might convince them to leave your organization, Cross said. "This is key to identifying what other kinds of benefits and perks you could be offering, in addition to salary increases or higher wages." 

The most important thing for an HR professional to remember, Low said, is to be completely transparent about pay. 

"Our research shows that even if you're telling employees they can't get a raise, it's still important to provide some element of why," he said. "When people are communicated with in a clear and straightforward manner about why they are paid the way they are—including financial realities for the business—they respond positively because they understand better. For many, this is enough to stay even without a raise."