Current Compensation Challenges

Have you talked about compensation with your employees lately?  Chances are that you have, and it was not an easy conversation for either party. What’s driving these challenges?


As of the end of May, the reported rate of inflation was 8.6%.  Consumer prices were up 8.5%.  Those are budget breaking numbers for many families.  On the flip side, compensation increase rates are averaging in the 3.0 to 3.4% range for 2021 into 2022.  Less than half the rate of inflation.  Nationwide, our unemployment rate is 3.6% making it a job seeker’s market.


Employers are feeling the same economic pressures as their employees as expense costs rise and employees look to them for compensation increases to relieve their financial stress. Paying employees more may not be feasible or sustainable, but losing employees is also expensive when you consider the cost of sourcing, recruiting, and training new employees and the impact of losing their institutional knowledge.  With these rates, employees are finding it advantageous to move to a new organization to increase their earnings.  Employers are struggling to hire new talent while maintaining their internal equity.


Is there a good solution?  Yes, but it’s not simple.  First off, while compensation is important, it’s only one factor in the employment relationship.  If you don’t have a healthy work environment, employees aren’t likely to stay regardless of compensation.  Some of the nontangible factors that way into the employment decision for employees that don’t break the bank include:

Provide a Positive Work Environment

- Employees appreciate a positive work environment that recognizes the value they bring to the team and encourages them in their work.

Make the Work Interesting

- We must do the filing at some point, but there are ways to make certain that there is variety in the assignments and employees have opportunities to learn new skills.

Offer Flexible Work Arrangements

- Post covid, employees have come to expect some flexibility in their work arrangements to provide for a good work life balance. Demonstrate enough trust in them to do their work productively while flexing hours/locations when feasible.

Create a Team-Based Atmosphere

- We crave connections. Building a team-based work environment by bringing people together in intentional ways is powerful.

Make a Difference in People's Lives

- We want to know that our work has meaning and makes a difference. If your employees aren’t on the front line where they see the impact directly, make certain to communicate the results to them.

If you are looking at your compensation options, know that an employee who is compensated at or near the market is unlikely to leave unless they are motivated to look by one of the intangible factors.  Some compensation options to consider:

Know the Compensation Rates for Your Market

- If you know the current market rates, you can make better quality compensation decisions for your employees to ensure that they are at or near the market.

Pay at the Midpoint of the Market

- If you can, pay at the midpoint of the market. That makes you competitive in the market and sends a message to your employees that you value them. An employee at the midpoint is going to be less inclined to entertain other options.

Consider Bonus Options

- Inflation isn’t going to last forever, so increasing your base compensation rates may not be the best long-term bet. Consider offering an incentive option to help your employees keep up without committing your firm to a long-term fixed cost.

Finally, our current compensation challenges are impacting the budgets of both employees and businesses.  Keeping clear lines of communication about your compensation strategy can help keep everyone on the same page.


What creative solutions have you implemented at your organization?  We’d love to hear what’s working for you!

Kevin Brozovich


Meet Kevin Brozovich, energetic entrepreneur, people-focused team-builder and HR practitioner-turned consultant. For almost 10 years, Kevin was Founder and Chief People Officer of HRM Innovations, a Kalamazoo-based Human Resources consulting firm many would consider the top in the region. After pulling his hair out making daily decisions about running the business (does it matter where the coffee comes from?), Kevin joined forces with the Rose Street Advisors team so he could solely focus on what he loves most: working with clients.

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