The competitive market for talent is driving volatility in compensation levels. Especially now, a salary structure out of synch with the market can hamper recruitment and retention efforts.
The flip side, however, can also be detrimental to an organization. As managers insist that greater pay is necessary to attract and retain talent, employers could find themselves with needlessly high labor costs that can quickly become unsustainable.
"2022 has been a roller coaster for employers," said Lane Transou, president of HR consulting firm Lane Transou & Associates Inc. in Houston. "Knowing where you are with regard to the market helps you drive the discussion with management on pay issues."
Living with Pay Volatility
"Volatility is a critical challenge, and there is no indication that is going to change," said Stacey Carroll, president and principal consultant with HR Experts on Call in Seattle.
To deal with this, employers need to plan how and when they review their pay structure. "A plan makes it easier to be flexible and make good, intentional decisions," she said. These decisions often involve everything from how competitive pay should be to which organizations to use when benchmarking pay.
Here are some key steps to keep pay structures current and relevant.
Review pay structures more frequently.
In the past, employers may have been able to review their pay structures every three to five years without issue. Waiting that long in the current market "may leave you with antiquated pay and pay ranges," Transou warned.
Instead, employers should be looking at pay structures and comparing pay to the market at least every other year, or every three years at the most.
In many cases, employers may need to focus pay structure reviews on specific jobs or job families even if the broader market is not moving as quickly. "Jobs move in the market at different paces," Transou said. "One year, engineers will have a sudden spike in pay, and the next year technicians will be trending."
"You can review 25 percent of your jobs each year to ensure that you are always analyzing the market," said Ron Seifert, senior client partner with consultancy Korn Ferry in Philadelphia.
This not only helps to keep the pay structure current in a changing market but also has the added advantage of spreading out the work involved. However, Carroll recommends that employers still plan to do a deep dive review every two years.
[SHRM members-only how-to guide: How to Establish Salary Ranges]
Broaden your approach.
"To do a proper salary structure review, you must first know your jobs and how they impact the organization, as well as the skills and competencies required for the job," Transou said.
"Certain employees may need to be treated differently," Seifert explained. For example, employers may use parallel pay structures for certain segments of the workforce, like those in specialized technical roles, whose work has greater value to the organization than that of other jobs.
Pay structure reviews may also reveal the need to restructure certain jobs. If market data indicates pay for certain pools of talent or for types of jobs is increasing faster than an employer's budget, the employer might consider alternatives to increasing pay beyond a certain level, such as looking for opportunities to shift talent from one area of operations to another.
"You may need to spend a lot more time on changes to the structure before [conducting] market pricing," Carroll said.
She noted that employers may be surprised at what it takes to do specific jobs and how often that can change. For example, as routine work falls away due to greater automation, employers have an opportunity to take away unnecessary work while also recognizing how changes have made the job requirements for the remaining work more intense.
In some cases, this could create opportunities to reduce or reassign headcount in certain positions and may require new or realigned budgets for headcount. "It may be necessary to restructure to expand the breadth of jobs," Carroll said.
Once the organization has a solid handle on the jobs it has and needs, it can create a pay structure with jobs repriced based on actual requirements. "Make sure positions match the work being done," Carroll advised.
[SHRM members-only toolkit: Performing Job Evaluations]
With a strong compensation structure, an employer can better manage compensation changes to accommodate existing employees or potential recruits. "You can never completely eliminate requests for different compensation requirements, but you can work to ensure that there are fewer one-off requests and exceptions," Carroll said.
To do that, employers need to develop guidelines for pay decisions. "Employers may not be able to afford to increase pay for all employees, so they need to be more surgical," Seifert said.
"The dream for HR and compensation professionals is to have a more strategic role in this process," Carroll said. "This allows them to get ahead of problems and engage in conversations in a more proactive way rather than digging out of a hole."
For example, if recruiting data shows persistent job vacancies in some parts of the organization, HR can work with leaders in those areas to figure out what is happening and whether changes to the pay structure could help address those issues before the problem gets worse.
Carroll recalled one company that was having difficulty hiring people for a specific department. It found that the hiring manager was trying to bring people in at the low end of the pay range to avoid pay compression issues with existing employees. Giving those existing employees an upward pay adjustment allowed the hiring manager to make higher offers to new employees, easing the problem temporarily.
"It's important to find creative solutions that solve the real problem," Carroll said.
Related SHRM Articles:
Creating a Motivational Cash Compensation Program, SHRM Online, June 2022
Fine-Tune Compensation Strategies to Keep Workers Onboard, SHRM Online, June 2022
High Inflation Means Resetting Pay Strategies, All Things Work, June 2022