US firms facing tight labor market revise pay, reward plans

Dive Brief:

  • U.S. companies confronting a tight labor market and the worst price pressures in four decades are expanding employee training, offering workplace flexibility and increasing both the amount and frequency of pay raises, according to Willis Towers Watson.
  • Nearly nine out of 10 employers (86%) are hiring employees at the higher end of salary ranges, 84% have given staff more flexibility in where they work and 81% offer sign-on bonuses, WTW found in a survey of companies in North America. More than half of the companies (55%) are expanding training opportunities and 65% use retention bonuses, especially for managers.
  • “Employers are leaving no stones unturned in their battle to find and keep talent,” according to Lesli Jennings, WTW’s North America leader for work, rewards and careers. C-suite executives “recognize that they will need to pull levers in addition to compensation and reinforce a connection to the overall employee experience.”

Dive Insight:

Firms facing the most constricted labor market in decades are fine-tuning their pay and rewards programs while trying to outcompete rival companies in employee recruitment and retention.

Many “help wanted” signs go unanswered. The 3.6% unemployment rate is slightly above the 50-year low recorded prior to the start of the pandemic in early 2020. Also, the 10.7 million job openings in June far exceeded the 5.9 million people looking for work, the Labor Department said Tuesday.

Meanwhile, employees facing the highest inflation since 1981 are jumping ship at a near-record rate to seize on higher pay. The quits rate, or the number of workers who left their jobs as a percent of total employment, has wavered since June 2021 between 2.8% and 3%, the highest rate since 2000.

U.S. companies hoping to retain workers plan next year to raise pay on average by 4.1%  the largest increase in 15 years, WTW found in a survey. During the second quarter wages and benefits rose 5.1% compared with the same period last year in the biggest gain since the Labor Department began collecting the data series in 2001.

Yet a big boost in compensation may not be enough to stem staff departures  average real weekly earnings slumped 4.4% during the 12 months through June, the Labor Department said. Worker spending power has waned as inflation in June surged at a 9.1% annual rate.

Nearly one out of four companies (23%) have increased their salary budgets, and 44% are planning or considering doing so, WTW said, citing a survey of 884 companies across North American employing more than 15 million employees.

Similarly, 22% of companies adjust their salary budgets throughout the year, while 46% are planning or considering doing so, WTW said.

Half of companies (51%) plan to only raise wages for top performers in step with price gains, Gartner found in a survey of CFOs and CEOs. Many retail, wholesale and information technology companies have embraced this strategy, according to Randeep Rathindran, vice president for research in the Gartner Finance practice.

Only 28% of companies plan to match raises with increased inflation for all staff, Gartner said. Manufacturing and services companies tend to favor pay increases for all staff, yet only a few fully index gains to inflation, Rathindran said.

“It’s clear that organizations are attempting to buy more time to read the tea leaves between persistently high inflation, the threat of recession and the state of the labor market before making significant strategic shifts,” Rathindran said in a statement.

Two out of every five companies (43%) aim to retain talent by using one-time bonuses, Gartner said.

“Instead of increasing base comp, one-time bonuses aimed at retention  especially for top performing staff are becoming more common,” Rathindran said in an email response to questions. “In addition to work flexibility, organizations can bring forward the vesting dates of stock options, or repricing stock options that are under the water.”

At the same time, 45% of companies have increased the frequency of career conversations with employees and 21% have sped up the timing for promotions, Rathindran said.

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