Compensation and employee retention with Dr. Jen Bott

Has the labor market become “unfrozen” after years of stagnancy due to recent events? What do you see as significant in terms of compensation historically and currently? How do those trends inform what we can expect from job seekers and employers in the near future?

Historically, focus has largely been on pay and annual raises. Equity was defined at the system level in terms of the process for establishing pay grades and ranges and not as much at the individual level. With a limited geographical market from which to recruit, pay decisions were consistent across positions and within an organization. Currently, the labor market remains very uneven. There is a great deal of competition in some sectors mixed with layoffs in others. Remote work has opened up the market for talent, which costs more and has less certainty for long-term retention. COVID-19 influenced and clarified what employees want from work and the importance of work within the greater context of their lives, impacting total compensation in many ways. Successful organizations develop and maintain an understanding of what motivates their employees to ensure the mix in the total rewards system remains competitive.

In addition to salary, what are job seekers looking at in terms of their total compensation when deciding whether to accept a job?

Total compensation, inclusive of benefits and work-life balance opportunities, is even more important to employees now, especially college graduates just entering the market. The desire for competitive health care coverage and rates, opportunities to engage in philanthropic efforts on work time, as well as overall flexibility may have a greater impact on offer acceptance than simply pay rates. The desire for meaningful work, coupled with the post-COVID-19 recognition that work isn’t the only determinant of success or fulfillment, has required organizations to reassess their benefit packages to ensure they meet the needs of current and prospective employees.

How might compensation be affected by hybrid or remote positions?

Hybrid and remote work transformed so many HR practices, including compensation and the related accounting practices that support the distribution of pay and benefits. Previously, many organizations recruited from local or regional markets for talent. With fully or partially remote work now much more common, the possibilities for talent (and the associated costs) have increased remarkably. Organizations must consider how the pay associated with positions—both historically and currently—will be impacted by geographic differences in cost of living. To recruit top remote talent, salaries must be competitive for that locality, which could create issues for the equity of the pay structure for the rest of the organization and employees.

What role does pay transparency play in the corporate environment today?

The importance of pay transparency is increasing, fueled by employee expectations, state and city regulations and a desire to create equitable organizations. At a minimum, sharing pay grades and ranges and key decision points such as cost of living assumptions and geographic influences can improve morale and retention. Pay transparency does have a trickle-down impact on other HR systems, like performance management, so this must be an enterprise-wide strategy to be maximally effective.

What factors are key to employee retention and how have companies been responding in order to retain talent?

Certainly, pay remains an important factor in retention, and organizations are responding. Pay increases returned to the workforce in 2022, as have bonuses. Pay increases have averaged around 3.5% across industries for 2022, which lags inflation, meaning that real wages continue to fall. Organizations must think beyond pay to retain employees, including opportunities for remote or hybrid work. According to McKinsey’s American Opportunity Survey, 58% of workers report working from home at least one day per week and 87% would take the opportunity to work remotely if offered. This has enormous implications for how we think about retention.

What are some notable trends or corporate decisions you think business professionals should take note of?

If organizations haven’t assessed what’s working and what’s not within their total rewards systems since coming out of COVID-19, now is the time! Analyzing the take-up rate on various benefits and pay relative to the market in a much broader way will be critical in remaining competitive. Understanding and allowing employee choice in benefits, including work hours, days and location, may be an important tool in attracting and retaining talent. Examining equity is critically important. Questions such as, ‘Are pay outcomes the same for women and people of color?’ are key. Prospective employees are drawn to organizations that transparently discuss equity and processes for ensuring equitable treatment—not just in pay, but in the processes that inform pay decision making. 

Do you have any advice for job seekers or employers regarding compensation? This could be related to negotiation tactics or considerations for compensation packages for either party.

Data on pay are more available than ever. For job seekers, spend time researching pay grades and ranges. Come into the negotiation with an expectation based in data. For organizations, understand the current market for the positions you are recruiting, including geographical influences. The worst possible outcome is to find the perfect candidate but fail to match expectations on pay and benefits. Transparency at the beginning of the process can help those with higher expectations self-select out. 

How do you incorporate current news regarding the labor market into the classroom?

I spend a lot of time talking about total compensation and am surprised by the sensitivity of today’s students to the many possibilities beyond pay. We talk about work-life balance and the tradeoffs that a focus on this balance may require. The influence of inflation is a constant discussion topic, both on wages, real wages and costs of goods.