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: