February 15, 2019
While employee compensation challenges seem to be ever-present, those challenges can become even more daunting in a tight labor market. And when unemployment is at historically low levels, employers feel pressure to keep employees satisfied with competitive base pay and attractive total rewards. Let’s look at the challenges and opportunities employers face in a tight employee labor market:
Employer Challenges in a Tight Labor Market
For workers, a tight labor market typically creates opportunities for career advancement and increases in base pay and total rewards. For employers, however, a tight labor market adds pressure to attract and retain top talent while still managing the bottom-line impact of compensation and benefits.
In short, the key compensation challenges employers face when the labor market gets tight due to low unemployment levels are these:
- Attracting desirable new employees
- Keeping current employees satisfied
- Retaining top-performing employees
Attracting new employees – especially top talent in high demand within an industry – is critical in an expanding economy. To do this, of course, means an employer must have keen insights into market forces (including market rates for compensation), as well as other total rewards components that can bring new hires into the fold. For the HR department, competitive intelligence is critical, with up-to-date Market Benchmarking and Base Pay Analyses essential to making the right moves for employee recruitment.
Keeping current employees satisfied with their compensation is also a challenge. This is especially true when base pay levels are raised for new hires but equity adjustments are not made for current workers. Imagine the internal discord and dissatisfaction that can arise when tenured workers learn they are making less than new employees! An Internal Equity Review can go a long way toward maintaining compensation balance and satisfaction.
Retaining top-performing employees needs to be a top priority in virtually any labor market. Why? Two primary reasons: 1) Top performers are key to the continuing success of the company, and 2) Turnover costs can be astronomical and take a company years to recoup. So, it is essential that any business operating in a tight labor market know the competitive landscape and adjust compensation and total rewards accordingly to reduce costs associated with employee turnover.
Employer Opportunities in a Tight Labor Market
While compensation challenges in a tight labor market can be overwhelming and difficult to manage, they also create opportunities. For example, companies that operate using current information via base pay and market benchmarking have a “leg up” on any competition still using old data or outmoded compensation programs.
And as I noted, when retention levels are solid, the cost of employee turnover becomes negligible. In fact, in a tight labor market, reducing the cost of employee turnover can free up money to pay for base pay and equity increases – another important opportunity for employers to bolster their market position! More good news is that a typical market benchmarking review can cost less than the expense of just one employee turnover.
The Bottom Line:
Market forces and employee expectations for substantial compensation increases can add pressure for employers. This is especially true during tight labor markets when unemployment is low. But employers who understand marketplace demands can meet the challenges head-on. They can outmaneuver the competition in a way that makes recruitment and retention of top talent easier. They can keep current employees satisfied. And they can reduce the cost of employee turnover. The key is using current data and taking strategic action to keep employee compensation and total rewards fresh and motivating.
To learn more about the compensation programs, projects, studies and initiatives that can keep your company on the leading edge during a tight labor market, contact us today at 317.589.8529.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.
Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.