Time To Talk About Pay!
Recruiting new employees and retaining current employees was a difficult task for many employers during 2018. And 2019 will continue to present many of the same challenges. The decade since the Great Recession has seen high unemployment rates, slow job growth, and slower wage growth. But all that is changing – and changing fast. Here’s why:
Number of New Jobs
The US Department of Labor, Bureau of Labor Statistics reported that the economy added 304,000 jobs in January, 2019. That is a huge number and is the 100th consecutive month of job gains. The hospitality, retail, and health care sectors experienced particularly strong growth during 2018.
The US unemployment rate is currently 4.0%. This represents a slight increase over the previous 3 months but is still considered by the US Department of Labor to be full employment. If you operate in a high-growth metropolitan area, the unemployment rate may be even lower.
After a decade of very slow growth, average wages in the US increased about 3.2% in 2018. In high-growth urban areas such as Seattle and San Jose, wages increased almost 7%. The large number of entry level jobs created in the hospitality and retail sectors, combined with a low unemployment rate, has raised wages for these positions. Retailers such as Amazon and Target now pay all employees, including part-time, temporary, and seasonal workers, a minimum wage of $15.00 an hour.
The federal minimum wage of $7.25 an hour has not been increased since 2009. Although the current Congress may consider an increase, in the absence of concrete activity many states and municipalities have taken steps to increase minimum wage levels. In addition to actual increases in the minimum wage, several states have passed or are considering legislation that will index the minimum wage to the rate of inflation while other states are considering regional minimum wage legislation to address cost of living differences in different areas of a state.
These are just some of the challenges employers face in this tight labor market. Unfortunately, these are complex problems that require creative, flexible solutions. Here are some steps to take to keep your compensation competitive in 2019 and beyond:
1. Review Paid Salaries
If you hired new employees during 2018, chances are you had to hire them at higher salaries – maybe higher than the salaries of current employees doing the same work. Successful compensation programs are both externally competitive and internally equitable. If you have new hires earning more than experienced employees, you have an internal equity issue. That is best addressed by reviewing all paid salaries and making adjustments as needed. And don’t rely on the fact that you have a policy that prohibits employees from discussing salary – it’s illegal to prohibit them and those conversations will happen anyway.
2. Review Salary Structures and Related Policies and Procedures
If you operate with a more formal salary structure (pay bands or salary grades), it may be time to review and update these. We generally recommend a review every 3 years or so – to ensure both external competitiveness and internal equity.
And some of your policies and procedures may be outdated as well. It’s common to give new employees an increase after 6 months, but some employers are giving an increase after 3 months and another after 9 months to increase retention. This can be particularly effective with entry level employees, where turnover during the first 6 months of employment frequently exceeds 50%.
3. Get Informed about Pay Equity
Since women currently earn only about 80 cents for each dollar earned by their male counterparts, starting salaries based on past compensation often perpetuate this inequity.
To address this, several states and municipalities have already passed legislation prohibiting these types of application and interview questions. Look for more of this type of legislation to take effect in 2019 – 39 states are currently considering it.
4. Get Creative With One-Time Payments
If you’re attempting to recruit a new employee who wants a higher salary than you want to pay, consider paying a one-time signing bonus as part or all of the salary differential. These can be structured as single or multiple payments and will help to minimize any internal equity issues.
And maybe 2019 is the year to think about developing and implementing a variable, performance-based incentive program. A recent survey reported that 90% of for-profit companies and 76% of nonprofit organizations use some type of variable compensation to supplement their base pay plans. Increasingly, these plans include employees at all levels in the organization.
Bottom line – now is the time to rethink your compensation policies and programs to prepare for the recruitment and retention challenges of 2019 and beyond. Of course, if you need any help with your compensation needs, give Affinity HR Group a call!
By Susan Pale’, CCP – Affinity HR Group, Inc.