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Increasing starting salaries in a challenging labour market

The pandemic has exposed and aggravated the challenges that were already brewing in the labour market at an accelerated pace.

The last couple of years of uncertainty, changing regulations, and fears have made many employees reevaluate their priorities. At the same time, the millennial workforce, in particular, is now more interested in work-life balance, job satisfaction, and opportunity for growth than ever before.

These factors, among others, have led to what has been called the Great Resignation, where employees are voluntarily leaving their jobs at a record pace, and even more are actively looking to switch jobs in the near future.

Despite high levels of unemployment, companies are struggling to find qualified candidates, especially in certain industries and locations. This has made many companies reevaluate what they offer employees regarding salary, benefits, and other more intangible perks.

How to attract employees today

With nearly half of managers (47%) reporting an increase in voluntary turnover within their departments in the last 12 months, human resource teams are scrambling to find the best ways to attract and retain employees.

As a result, a recent survey carried out by Robert Half Canada found that two in five (42%) organizations have turned to increase the starting salaries they offer new employees to ensure they can attract top talent and so fill their vacancies in a challenging labour market. [1]

This policy can provide good results in the short term, and it proves attractive in times of inflation and low demand for jobs, as we’re facing today.

However, it’s not the most effective long-term solution to the problem of attracting and retaining employees. As well as being an additional drain on payroll management resources, it can create tension and resentment among existing employees who feel like they are being left behind and treated unfairly.

Plus, it becomes a long-term commitment that can be difficult to change or reverse if the market conditions improve.

What are the alternatives to increasing salaries?

So, if increasing salaries isn’t always the best way to go, what are other alternatives for hiring managers?
The 2022 Mid-year Compensation Actions Survey from Willis Towers Watson that surveyed 884 employers across a range of industries in North America has found that these are other financial and non-financial levers that companies report to be taking action on as a way to attract potential candidates [2]:

  • 84% are offering increased workplace flexibility
  • 81% are offering sign-on bonuses
  • 65% are offering retention bonuses
  • 55% are increasing the use of training opportunities or making them more targeted
  • 47% are using spot rewards

Additionally, the study reports that to remain competitive in attracting talent, many companies are changing how they recruit job candidates. The survey was carried out from June to July 2022 and surveyed over 575 managers with hiring responsibilities within their organization.

It found that 31% of employers surveyed reported loosening requirements around education, skills or experience, and 30% were contemplating hiring candidates outside of their geographical location and allowing them to work fully remotely so they could live anywhere they wanted to.

With the shortage of workers and many companies competing for the same top talent, it’s more important than ever to ensure you are doing everything you can to keep your company appealing to attract and retain employees.

The challenges for recruiting today

Between the shift of priorities for many employees coming out of the pandemic years, rising inflation putting pressure on household budgets and making workers demand higher salaries, and the competition for top talent, recruiting has become more challenging than ever.

According to the study, 89% of managers state that it can be difficult to find qualified professionals to fill vacancies.

There are several reasons that they state for this, including:

  • a lack of qualified talent applying for the roles (40%), and
  • salary requirements for potential candidates exceeding what their company is willing to pay (22%)

The problems are not just in filling existing vacancies but also in securing talent retention for current employees and ensuring that the company will have the right workers it requires to meet future business goals.

Indeed, the report showed that 79% of employers worried about having more of their current employees quitting, aggravating the talent shortage they’re already experiencing.

Of the 575 Canadian managers surveyed, these are the expectations that they had regarding their upcoming recruiting needs:

  • Only 2% of the employers surveyed reported that they were eliminating positions
  • 8% of employers stated that they weren’t looking to hire to fill new or existing vacant roles
  • 73% of employers reported that they were looking to hire for entry-level or more junior positions for their organizations

This shows that the vast majority of employers expect to have to recruit needs in the near future, even though they are already having trouble filling these roles today. This mirrors the trend seen across North America as the talent shortage continues to grow.

As well as having to cover their in-house vacancies, employers also find that they need to hire more frequently for external contracts and projects.

The report showed that 45% of employers are planning to bring in more contract workers before the year’s end, which could help to plug some of the gaps in staffing levels and compensate for any skills currently lacking within the organization.

However, as competition for top talent continues to increase, the rates that these contract workers will command are also likely to increase, which could put further pressure on company budgets.

Temporary staff can help to provide some much-needed relief for overstretched teams, but it’s not always the best or most cost-effective solution in the long term.

It’s also essential to ensure that they are fully integrated into the company culture so that they can add value and not just be a stopgap measure that ends up costing more than it’s worth.

How to ensure you remain attractive to applicants

With competition for talent more brutal than ever, employers need to make sure they are doing everything they can to appeal to the needs and wants of employees, especially when it comes to attracting and retaining top talent.

And even though salaries are a crucial factor in any job search, they aren’t the only thing that matter to employees in the long run.

Here are some of the top actions that Willis Towers Watson recommends employers look at today in their Mid-Year Compensation Survey:

  • Define your overall compensation philosophy. By looking beyond salary to the overarching strategy behind compensation, including all of the elements that make up an employee’s total compensation, you can create a more holistic approach that will be more attractive to potential recruits.
    Having a long-term strategy in place allows employers to make more informed decisions about which benefits and perks matter most to employees and how they can realistically afford to provide them in the long term.
  • Review salary structures and internal pay equity. To be able to attract and retain the best talent, it’s essential to make sure that your salary structures are in line with the market. But it’s vital also to ensure that there is internal equity within these structures so that employees feel like they are being fairly compensated for their roles and responsibilities. Internal pay equity is also a vital element in attracting a diverse workforce and keeping them engaged and invested in the company.

Define the talent strategy and optimize compensation spending. By having a clear understanding of the talent strategy and how it relates to compensation, employers can make sure that they are using their budget in the most efficient way possible. This way, they can be sure to attract the right type of talent instead of following temporary trends that might not produce the best results for their specific conditions.

It’s also worth keeping in mind that the needs of employees change over time, so it’s essential to review the talent strategy from time to time and optimize the budget to help best achieve it.

Enable HR and managers to manage current talent challenges. By giving HR and managers the tools they need to identify and solve talent challenges, you can create a more agile workforce that is better equipped to deal with the ever-changing needs of the business.

Appeal to the needs of the workforce

With employee retention at stake and new talent becoming harder to find and keep, it’s more important than ever for employers to make sure they are doing everything they can to appeal to the needs of their workforce.

By taking a strategic approach to compensation, prioritizing employee wellbeing, investing in training and development, and enabling HR and managers to manage talent effectively, you can create a more attractive proposition for potential recruits. And this way, you can also be sure that you are keeping your best employees engaged for the long term.

Beyond increasing starting salaries, ensuring that the company culture and overall employee experience are positive should be a focus to help companies remain attractive in today’s challenging labour market.

Sources

[1]: https://www.hrreporter.com/focus-areas/compensation-and-benefits/2-in-5-employers-boosting-starting-salaries/368930
[2]: https://www.wtwco.com/en-US/Insights/2022/08/infographic-employers-rethink-work-and-rewards-to-address-labor-inflation-worries

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