These days, companies aren’t the only ones recognizing the value of transferable skills. So are job-seekers. As a result, they feel less confined to specific industries. Translation: They’re going where the money is — which makes hiring for high-volume, traditionally low-wage roles especially difficult.
At ERE Digital, Sept. 23-24, I’ll be presenting a session titled “Can You Afford to Pay More During a Labor Shortage? Can You Afford Not To?” I’ll be talking about how to compete for hourly workers by refining your compensation philosophy, making a practical case for higher starting pay to your compensation and finance team, and bolstering your recruitment abilities by infusing your pay practices with greater fairness.
Money still matters when it comes to hiring. But, of course, it is a rare company that pays at the top of the market, ties strict performance criteria with that pay, and then embeds those expectations in the culture. Without the performance and culture pieces, your company will struggle with compensation decisions and with recouping worker investment through productivity gains.
Hourly pay isn’t the only major challenge facing compensation teams. We’re also struggling with how to shift long-held industry views of paying a geographically distributed, and now more remote, workforce.
Compensation decisions are tough. Take Google and its pay calculator, which incorporates location in setting pay. When employees move, they may end up earning more, or less. The public coverage has not been kind to this approach.
Many perceive what Google and others are doing as a new way of operating post-Covid, perhaps assuming it to be a cynical way of saving the company money. But the industry methodology of changing pay by location is not new. Geo-based pay has been a standard compensation practice forever.
Yet the tension is understandable, and those discovering this now because they’re working remotely for the first time have a point. If you are an employee, you want to optimize (maximize) pay for yourself — and if you are contributing the same value whether you’re in San Antonio or San Francisco, you might not understand why the location of your laptop matters. But if you’re a compensation designer, you want to optimize pay across your whole organization. This comes with tradeoffs.
Small companies are well positioned to manage these tensions. If your small business is in San Francisco, but you will now transition to fully remote, issues of geo-pay may be relatively easy to manage because you will already have the highest wages nationally and you have built that cost structure into your business. But if you’re a larger organization with many locations, and especially if you have not given everyone the option to work remotely, then pay questions become a lot more complex. Even if you raise everyone’s pay to the highest geographic rate, you will not be able to make everyone happy because some will be netting more than others for the same work. A lot of HR decision-making, especially around pay, comes down to a company’s tolerance for anger triage.
So when Google says they are going to cut your pay if you work remotely, it’s not about you, it’s about the way pay has historically worked at most companies. But there’s no reason the future of pay has to look like the past.
The Case for Fair Pay
It seems obvious, but if you want to attract more of the right candidates, you’ve got to pay them credibly. When large companies say that they can’t increase wages, especially in the entry ranks, in my direct experience that’s just not true. More often it’s a question of company priorities.
Many employers with a large volume of entry-level workers overestimate the impact of wage investments on their overall payroll. For example, a retailer might have 80% of their people working in the non-management ranks of their stores, but those salaries and benefits might add up to only 30% of the company’s overall Total Rewards expense. By giving this group a 20% pay increase, which is about seven times the historical market merit budget, the total impact on the company’s payroll is only a 6% increase (and likely less on a Total Rewards basis because these workers receive less incentive pay and benefits). The money can be found, but only if it is a leadership priority.
Money alone is not enough to differentiate yourself as an employer, but you have to pay a credible rate to stay in the conversation. If you pay $13/hour and a competitor pays $12/hour, you have not created a sustainable advantage in hiring. You still have to differentiate in other areas. [Editor’s note: ERE Digital will also feature a panel discussion titled “Money Talks, But It Won’t Be Enough: Identifying the Best Incentives to Lure Job-Seekers.”]
Being able to pay more and actually paying more are two different things. As a comp professional, I will admit it’s critical that you learn when to ignore us when making a case for raising salaries! Our traditional compensation surveys have not yet made the distinction between pay that is market-relevant and pay that is people-relevant. Companies that have made this mental shift already — that recognize how expectations for talent and the company’s role in society have changed — did so by learning to go above and beyond surveys.
Some companies have created entirely different methodologies from relying on pay surveys to set pay rates. PayPal, for example, participates in all the same salary surveys as other big companies, but they now also account for net disposable income (NDI) when making comp decisions. They’ll say, for instance, that they want all their employees to have at least 20% NDI, which is the amount of your monthly income left after paying all of your monthly bills.
To the majority of companies who have felt the winds shift in their hourly employment experience but haven’t invested in these workers: What did you expect? By ignoring employee needs, offering limited pay and limited benefits and limited career opportunities and limited sick and parental leave, and sadly in too many cases, limited dignity, of course you will continue to receive limited applicants. Your hourly staff expect and deserve to be treated like people, not interchangeable office supplies. It won’t cost as much as you think.
I’ll be diving into this topic more during my presentation at ERE Digital, Sept. 23-24. Use EREEMAIL50 to receive 50% off registration at www.ererecruitingconference.com. I hope to see you there!
(This article, as told to ERE editor Vadim Liberman, has been edited and condensed for clarity.)