Many employees saw their pay frozen or cut back during the recession, but with companies beginning to ramp up hiring—and finding a shortage of talent—loyal employees may begin to wonder if they missed out on a bigger payday and need to consider jumping ship for a heftier check.
Experts say compensation packages began inching up in the past year or so as unemployment dropped from 6.9 percent in March 2010 to 4.5 percent in March of this year. However, it isn’t just the unemployment rate dropping that will influence pay increases. It takes those still in the marketplace jumping ship and having the experience and skills that command higher paydays.
Most industries are seeing modest salary increases between 3 and 5 percent, with more pronounced gains in technology, accounting and finance, says Barry Roy, Manchester branch manager for Robert Half International, a staffing firm. “It’s picked up significantly over the last year or so,” Roy says, adding it’s a trend that will continue as companies vie for a limited talent pool. “As they are onboarding new individuals, companies are finding demand for stronger compensation packages, either salary, salary plus equity, or salary plus work from home or flexible work schedules.”
That is why companies that have not been looking at pay fairness and equity issues should be, says Tonya Rochette, a human resources consultant, vice president and partner at Human Resources Partners LLC, an HR outsourcing firm with offices in Concord and Dover. Many companies downsized during the recession, heaping additional job responsibilities on the survivors without necessarily adding to their paychecks.
“We’re now in a rebound environment and people are coming in at the same or higher compensation levels because of competitiveness to attract top talent. Those survivors who absorbed additional duties now see someone with less experience is coming in at higher pay,” Rochette says. And she says employees will find out. “You can’t legally require employees not to talk about wages.”
That could lead experienced people seeking a raise to look outside their current employer. “We all know when you jump, you get a pay raise,” says Mirjam IJtsma, owner and president of Cultural Chemistry LLC in Manchester, a consulting firm. So if your company is beginning to pay higher premiums to attract talent and your staff gets wind of it, you may find people getting in line with their hands out, or worse, eyeing opportunities with your competitor.
Do Your Research
Experts agree that as companies ramp up hiring, there should be regular assessments of compensation, with adjustments made when appropriate. Transparency is also important to ensuring fairness in pay and keeping rumors at bay.
To ensure a manager fully understands how jobs in the company may have changed from the original job description, IJtsma recommends giving the employee the job description or a comparable one from Monster.com and ask the employee to rewrite it so it reflects their current duties. “You’ll be surprised by what an employee is doing,” IJtsma says. “Jobs change, especially if the company is evolving. Their responsibilities have probably increased. You want to pay for that.”
The more transparent a company is about its pay raise structure and the requirements for earning raises, the less employees will feel a need to share salary information and rally others to complain, IJtsma says.
“A good company will demonstrate the basis for setting wages and pay band,” says Rochette, adding that establishing a pay raise structure is not enough. Companies need to make sure it is executed. “We see the biggest break down in that there may be a policy, but it’s not applied evenly throughout the company,” she says.
Rochette recommends an annual companywide compensation review to ensure salaries are competitive with the marketplace. IJtsma says larger companies tend to do such reviews at least every five years. “A large medical supplier in Massachusetts did that and employees got a raise of 7 percent to keep up with the market,” says IJtsma, explaining the alternative is far costlier to a business. “The risk is if you are significantly behind the market is employees realize they can jump ship and go to a competitor for a lot more.”
Other factors that should be considered when reviewing and adjusting pay include the level of experience required to excel at the job, level of education, certifications earned, level of autonomy and whether the job requirements have changed. “Think about the value an employee brings to the organization,” IJtsma says.
Many employers will also tie compensation to company performance, Roy says.
There are also many salary guides and online tools, including salary guides produced by Robert Half and free statewide data from NH Employment Security. IJtsma says employers will never find an exact match on any survey, which is why they should use at least three different sources and find a middle ground.
“You have to do your market research. People think the pay in Portsmouth is the same as in Manchester. It’s not,” IJtsma says. “Companies don’t understand the market. They see what the last employer paid and pay the same. There are some employers who will try to match pay from a different region.”
Pay discrepancies can also lead to a potential lawsuit if an employee interprets the difference in pay as an issue of discrimination, including gender or age, IJtsma says.
When There’s No More to Give
Just because an employee wants more money though, doesn’t mean they should get it. The reality is that employees can reach a cap in their earning potential at a company. “From a business standpoint, you can’t afford to keep giving incremental increases to someone without getting higher skill levels. Be honest as to how you establish their rate,” Rochette says.
IJtsma agrees that at some point, giving a raise gets to be too expensive for the needs of the company, and it requires an honest discussion about market and company realities. IJtsma says. That discussion also needs to include what kind of new or enhanced skills an employee will need to acquire that will bring more value to the company and justify further pay increases, she says.
Before you start sweating that your business is about to lose all its top talent because you can’t afford to give big raises, take a breath. Experts say money usually isn’t the main motivator of why someone stays with a company. It’s about culture and benefits.
“Business owners need to talk to employees and find out what is important to them. It’s not always about money,” Roy says. “For some it’s about some equity in the company, making a percentage of profitability. For others, it’s time off to spend with family.”
Employees are negotiating for flextime, increased matches on 401(k) plans, and profit sharing, Roy says. “Dig in with employees and ask if they are happy and how they feel about the position they are in. The personal bond goes a long way these days,” he says.
Rochette says she is not seeing a lot of people switching jobs…yet. “People are still nervous about jumping ship,” she says, which makes it harder for companies to secure the talent they need. “It’s a depleted pool and companies are having to be more aggressive in finding those passive job seekers. In the next couple of years you will see [employees] jumping,” Rochette says.
Current Issue - April 2024