We recently surveyed over 500 HR professionals to gain more insights on the impact of “The Great Resignation” within U.S. organizations. Perhaps unsurprisingly, the results suggested that the “talent war” and employee retention are more of a concern now than ever before. In fact, nearly 57% of respondents stated that current resignation rates are higher or much higher than they have ever been.
Additionally, almost 60% of respondents unanimously agreed that increasing wages should be a top priority in combating rising talent competition. But, taking it a step further, how can HR determine when it’s time to increase wages? How should you determine the amount of an increase? And finally, how can you stay competitive when you don’t have the budget to offer a pay raise?
To help HR professionals tackle wage increases, calculations, and retention amid “The Great Resignation”, we’ve compiled a list of tips & suggestions from organizations all over. Want to compare payroll solutions? Read our Gusto vs Rippling guide to learn more.
How to Determine When to Increase Wages
1. Conduct a job analysis
There’s no hard and fast rule for determining when it’s time to increase wages for your employees, but an in-depth job analysis can be a good starting point.
Shiv Gupta, CEO of Incrementors SEO Services, suggests, “A job analysis is the process of gathering, documenting, and analyzing information about a job to determine the activities and responsibilities it entails, its relative importance to other jobs, the qualifications required to perform the job, and the conditions under which the work is performed.”
Before deciding on a wage increase, it’s important to understand the value of the job position and its responsibilities. Once this is complete, you can move forward with the actual number crunching.
2. Use tools and benchmarks to identify industry standards and gauge competition
While conducting a job analysis is an important first step, you’ll need to refer to real-world, industry benchmarks for the various roles within your organization in order to determine whether a pay raise is necessary. David Reid, Sales Director at vem-tooling.com, loves using the following tools to help determine benchmarks:
Indeed: robust salary data gathered from job postings and employee-reported data
Bureau of Labor Statistics: highly scientific, government-run survey that you can access for free
Salary.com: complete reports and data subscriptions to help determine salary and wage increases
Payscale: easy-to-use tool including employee data and comprehensive pictures of salaries
LinkedIn Salary: a new entrant to the field with some of the best data on salaries
Scott Steward, CEO at HiCollectors, echoes the same sentiment: “As an entrepreneur, I base my increase on the Bureau of Labor Statistics. This is the place to go if you enjoy graphs and statistics… It’s a comprehensive database containing information on employment rates, regional employment information, job outlooks and predictions, median wages, U.S. employment trends, profession descriptions, and demographic data for just about every vocation you can think of.”
Utilizing tools and industry data allows HR to stay competitive, gauge fair compensation, and identify ever-changing industry standards in their wage research processes.
“PayScale is a tool that I use on a regular basis. It’s a huge pay database that companies and job seekers may use… General information and research on fair compensation, salary negotiation, and salary best practices are also available on the site. A free salary report based on experience of geography is also available to casual users,” adds James Leversha, Director at Top Notch I.T.
As you perform research, don’t forget to utilize multiple tools for maximum accuracy. GoCo’s People Operations Manager, Liz Everett, CPC, adds, “I recently had to do a ton of research on wages and industry standards to make sure we were up to market and found a disparity in employee reported tools vs. a compensation survey tool with wages reported by companies.”
3. Work with a wage consultant
If you’re not confident in your own research, or you simply do not have the time to perform it, working with a wage consultant is a great way to determine if any updates must be made to your salary structure.
Tyler Martin, Founder and Certified Business Coach at ThinkTyler, says, “You should assess your employees’ compensation on a regular basis by comparing them to roles at other organizations with similar features. Working with a wage consultant or subscribing to different compensation databases will provide you access to this type of information.”
4. Gather info on how much competitors budget for a salary increase
“Research the market. Take cues from competitors, industry, and several companies on how much they are paying. Gather information on how much they budget for a salary increase. Determine what the market pays for a job position and the benefits or bonuses that go along with it,” says Sonya Schwartz, Founder of Her Norm.
After gathering overall industry standards based on various job descriptions, location data, and company performance, you’ll also want to know where your top competitors stand. After all, your competitors compete for more than just business -- they also compete for talent. Knowing how your competitors budget for increases, what their pay scales look like, and more, can help you determine your own increase numbers.
5. Assess your company’s complete financial condition
Tyler Wall, President & CEO of SD Bullion, advises on considering the overall financial situation in the company. “Is your cash flow positive? Do you have enough reserves? Can you afford to increase your employees’ salaries? If so, then you can go ahead with it.”
“Before determining the increase in our workers’ wages we thoroughly understand our financial condition and analyze the extent of salary increments we can offer without feeling overburdened. We believe that when it comes to increasing employee wages, it is imperative to establish a fine balance between our company’s financial condition and employee expectations,” adds Jessica Robinson, Content & HR Manager at The Speaking Polymath.
6. Take location and cost of living into consideration
While it’s important to take into account salary averages for a specific role, the amount you’ll need to increase a wage depends largely on the geographical location of the role as well. A sales representative in New York City may need a very different pay raise than someone in a different city.
Kyle MacDonald, Director of Operations at Force by Mojio, says, “Expensive housing, crippling debt, and generally huge costs of living in every US metropolitan has demanded people make well above the minimum wage in order to live comfortably. I like to scout for what the average salary for a position is in similar cities, and then consider our budget with other executive members before deciding on the right amount.”
“A yearly raise to match inflation is needed at least,” adds Patti Naiser, CEO at Senior Home Transitions.
7. Consider the cadence of pay raises
Mike Mora, Founder of Green Lion Search Group, says, “One thing to consider is when the last time was that you increased your starting pay or revised your raise schedule. Your pay may have been competitive when you opened, but if that was ten years ago and you haven’t increased it since, the industry standard may have raised around you.”
8. Monitor your payroll percentage
Do you know your payroll percentage in relation to your revenue? Moran adds, “If your payroll expenses are a significantly smaller percentage than your total revenue than they were in past years, this could be an indication that you either need more staff or are undervaluing your workers, especially if you’ve also seen increased turnover from your team.”
9. Derive employee feedback regularly
Your employees are your most valuable asset, so why not go straight to the source? Keeping a pulse on their attitudes about salary will help curate a road map to increasing wages.
Robinson says, “We believe that proper determination of whether you are paying enough remains incomplete without considering employee expectations. So, we derive employee feedback to analyze the expectations of our workers. If the amount of money we pay them is around the amount of money they expect from us, we consider that we are paying enough.”
How to Determine the Amount of a Pay Increase
Now that we’ve covered the bases on determining whether you are paying enough or whether you need to consider offering a wage increase to stay competitive in 2021, here are some tips on finding that magic number.
1. Consider your margins and do the profitability math
Okay, so the signs are telling you it’s time to increase wages within your organization. How much can you afford to increase?
Moran of Green Lion Search Group adds, “Consider your margins and how they compare to your ideal cost/profit balance to see how much room you have to boost wages. It can help to simulate a few scenarios so you can see what the total of increased wages will be.”
Industry knowledge, as mentioned in the above section, will help in this area as well. If you know the current standard for the positions in your industry, you will better understand what a “competitive salary” truly means.
“It’s mostly a math problem,” says Bram Jansen, Chief Editor of vpnAlert, “and the goal is to see if you can keep your profit margin when giving employees’ raises. Let’s imagine your annual revenue is $100,000 and you aim to generate a 10% net profit, or $10,000. You can’t spend more than $90,000 to bring in $100,000 in sales and make the $10,000 profit goal. You’ll need $90,000 to cover all of your expenses, including salaries, rent, utilities, interest, and taxes. Getting a handle on those costs will help you figure out how much you can pay your employees while still making the 10% profit you want.”
2. Use tiered percentages
Offering tiered percentages can help streamline the wage increase process for HR managers and employers.
Daniel Foley, Founder of Daniel Foley Marketing Agency, says, “Every quarter, I give bonuses to staff who outperform their peers. Raising by percentages is a good idea for end-of-year and mid-year raises. Set explicit (reasonable) targets for your employees to meet, and reward them with tiers of percentages.”
3. Track objectives based on duties and company goals
A good way to determine increased amounts is to tie KPIs and objectives to monetary values. “All of our employees have objectives based on their duties and company goals. We use these objectives as a way to measure both individuals and teams to track and measure progress. If they complete their objectives, then they are qualified for a pay raise,” says Stephen Curry, CEO and Founder of CocoSign
Robinson also adds, “We keep track of employee productivity with the help of productivity tracking tools. These tools help us determine whether our workers are performing according to our expectations or not. Those who perform consistently well, naturally expect to receive an increment in their wages. So, we make sure to offer them the desired increments.”
4. Tie in tenure
While the duration an employee has been a part of the team should not be an end all be all, it can be helpful to use tenure to determine the raise amount.
Robert Johansson, CEO & Tech Expert at imgkits, says, “We use length of their tenure to compute their compensation, in addition to equity for early employees… This may appear old and bureaucratic for a company, but it aids in the retention of early employees, sending a favorable message to the rest of the team.”
Dr. Dee Richardson, CEO & Owner of Healing Hands Chiropractic, agrees: “The duration of service of an employee can influence raises. How long have they worked for the firm?”
5. Know what your competitors are paying
To keep employees around, you’ll need to match what competitors are increasing wages to. Robinson adds, “Before finalizing increments we also keep into consideration what our competitors are paying.”
6. Use overall economic circumstances to determine the amount
Economic circumstances don’t impact just one business, but all of them. Jessica Robinson states, “We consider all economic circumstances before determining the increase. The inflation rate and changes in the cost of living are two examples of factors that we consider before finalizing the increments.”
How to Stay Competitive When You Don’t Have the Budget
Full disclosure: Increasing wages isn’t everything. Even if the salary you offer is equal or higher than the industry standard, there are many other factors that contribute to an employee’s experience and desire to stay at your organization. For businesses that don’t have the budget, there are still many ways to retain employees amid “The Great Resignation”.
Ryan Rottman, Co-Founder and CEO at OSDB Sports, says, “While you will definitely want to keep your wages competitive, keep in mind that there are numerous other factors that affect employee retention… Things like enjoying their role, appreciating the company culture, and respecting the management team rank much higher.”
Improving other benefits and perks when you don’t have the means can go a long way too. “To offset the payroll costs, we’re trying to sweeten the perks we offer as a small business. These include flexible hours, four day work weeks when possible, and unlimited time off. We feel that this move will also help us retain our employees, who are more valued right now than at any other point in time…” states Thomas Hawkins, Head of HR at Electrician Apprentice HQ.
Everett from GoCo emphasizes, “Ultimately, while we are in a raging talent war and compensation is a strong factor, we as an organization have kept our mentality of always listening in terms of career path/growth very true. Sometimes, it can be as simple as an employee not feeling motivated in the role or department they are in and thus looking elsewhere (which can lead to a resignation if you aren’t willing to listen) -- when this has happened, we have listened with open ears and have made transitions that work not only for us but more importantly for our employees.”
As HR faces talent competition fiercer than ever before, having a plan in place for evaluating wage increases, budgets, and feasibility, will go a long way. With turnover rates skyrocketing as the talent war worsens, the best an organization can do is take a methodical approach to determining the need for an increase in their industry or market, calculate a reasonable number for both them and employees, and continue to build on additional engagement and retention efforts unrelated to salary. With these steps in place, you’ll likely see higher employee satisfaction and loyalty amid unprecedented times.
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