How To Compete in a Tight Labor Market Knowing that Compensation is King

Traditionally, pay and benefits have been top selling points when attracting job candidates. However, the last few years have altered the recruitment and retention landscape dramatically. Is pay still a major factor for workers?

Employees buckled down for months during the height of the pandemic. As soon as the world opened up, the pent-up demand for workplace change launched the Great Resignation. Today, with recession threats looming, pay and well-being-related issues (such as work-life balance) are the two most important factors employees consider when accepting jobs, according to Gallup.

A June 2022 survey found that 41% of workers were planning to look for new jobs in the second half of the year. So, organizations that can’t offer the best pay or benefits will need to seriously contemplate how they can compete in the current job market.

4 Ways Employers Can Compete in the Talent Landscape

In this new environment, your company should update its compensation program. Will you lead the market or meet the market? If you simply meet the market, your pay might not appear competitive. This is where transparency is key. Here’s what you should consider when reviewing your compensation plan:

• Have a clear written compensation program philosophy, defining your strategy and goals. This will help employees and potential new hires understand your business’s pay structure. Focus on total rewards, such as employee bonuses, instead of earnings alone. Explain to prospective hires how pay ranges are determined and offer examples of when and how employees get raises. Then, give managers the tools they need to discuss pay openly with their teams and prospective employees.

• You should also have a clear employee value proposition (or EVP) that outlines your organization’s fundamental values. For example, grocery chain Trader Joe’s has an exceptional EVP that includes a commitment to biannual reviews and the potential for a yearly 7% to 10% pay increase for each worker. This helps ensure workers reach their full potential.

• Offer high incentives, which could include profit-sharing bonuses, that are meaningful. That way, you can entice candidates to accept potentially lower salaries with higher chances of rewards (such as bonuses).

• As independent work becomes mainstream, consider contract or outsourced workers to fill skills gaps. After all, contingent workers now make up more than one-third of the U.S. workforce. Having an internal and external talent pool can help your organization evolve in a tight labor market.

The Importance of a Strong Talent Strategy

If compensation is an area you struggle to compete in, your company should regularly perform SWOT analyses around your talent strategy to determine how you can attract and retain talent. Here are the key questions to ask in a SWOT analysis:

• Strengths: Identify what other competitive advantages you can offer. Are there ways to further expose these strengths during the recruitment process?

• Weaknesses: In which areas can your talent strategy improve? Will technology help fill job openings faster? Is there a cultural problem that can be addressed to reduce turnover, or is pay the no. 1 reason for turnover?

• Opportunities: As you look outside your organization, which opportunities can you take advantage of? Has a competitor recently laid off talent? Are there new benefits you can offer your employees to keep them engaged?

• Threats: Which external threats need to be addressed in your strategy? Have your wages grown each year? Are employees expecting higher wages due to inflation?

When compensation is king, don’t panic if you can’t necessarily offer top dollar. If you position your company right, you’ll be primed to attract and retain top talent with incentives that go beyond mere numbers.

Tania Fiero is the chief human resources officer at Innovative Employee Solutions (IES), a leading global employer of record in more than 150 countries that specializes in payrolling and contractor management services for today’s contingent workforce. Founded in 1974 in San Diego, IES has grown into one of the city’s largest women-owned businesses and has been named one of its “Best Places to Work” for 10 years in a row.