Compensation Back On the Front Burner?

June 23, 2015

During the so called “Great Recession” most employers naturally and prudently acted cautiously regarding compensation decisions. One of the first areas to suffer was total compensation. Employers reduced or suspended salary increases and bonuses, and tried to hold the line on benefit costs. Continued low consumer goods inflation added to the incentive to freeze salaries as much as possible.

Many employers used these techniques to control costs prior to resorting to painful layoffs and job eliminations. Now that we are six years from the official end of the recession in June 2009 (according to the National Bureau of Economic Research), the pent-up activity in employee compensation management is beginning to have a significant effect on human resource management activities.

From Hiring Solutions LLC’s recent experiences with our 250 clients, we are seeing the following trends:

  • The war for talent is heating up. With employers in survival mode, fewer resources were allocated to salary adjustments and bonuses. Further, the regular salary range adjustments or “structure adjustments” suffered the same fate. With unemployment rates in nearly all areas of Michigan slowly returning to pre-recession levels and job participation rates at historic lows, competition to hire and retain qualified employees is becoming critical to employers’ strategic plans. With the overall economic factors and organizational resources improving, more firms are revisiting their compensation plans. Our firm has experienced more requests lately for compensation studies to benchmark their salary structures against those with whom they compete for talent, and in order to make labor market adjustments.
  • Be fast or be last. Our firm does about 50 searches each year and we are seeing more candidates receive multiple offers. Long, drawn-out selection processes today risk losing the best candidates to competitors who can act quickly and offer market competitive salaries. The salary component should be determined at the beginning of the selection process so that the employer doesn’t waste their time or that of the candidate.  Employers need to be flexible regarding salary offers if they don’t have a good understanding of the market for each position.
  • Good time for college graduates. According to the Michigan State University Employment Research Institute, the average starting salary for graduates with a Bachelor’s degree in 2014 was $39,775, a 5% increase over 2013. With organizations limiting salary increases for existing staff and having to pay more for entry level staff, existing staff members may experience “salary compression” where their salaries are at or below that of new staff members. Employers may need to make adjustments to maintain internal equity or risk losing employees.

For those who were able to stay awake during our econ classes, the simple rule of lower supply combined with higher demand equates to increased costs. Our improving economic climate is creating that type of environment for Michigan employers today. Employers need to be agile and flexible to successfully address these challenges and support their strategic human resource objectives.

Contributed by Todd Surline, Hiring Solutions LLC.

View the on-demand webinar “How to Set Salaries: Understanding Labor Market Trends” with Todd Surline and Alex Gardner.