With all of the talk about office culture and employee perks, it’s easy to lose sight of the importance of a competitive wage. While it’s true that salary isn’t everything, your employees can’t pay their electricity bill with a free gym membership. Salary still trumps benefits.
How Compensation Has Changed
Compensation packages have changed drastically over the years. In an effort to attract and retain talent, many employers have offered plusher benefit packages. The Society of Human Resource Management’s (SHRM) annual employee benefits survey found that the number of benefit options offered by the employers surveyed skyrocketed to 344 in 2016, up from just 60 in 1996. The survey found that more employers are offering culture-enhancing benefits, like telecommuting, flextime, and wellness programs.
The reason behind the changes is in part due to talent demands. Today’s workforce has new workplace expectations, including flexibility and a fun culture. However, research from SHRM still indicates that higher pay remains more important than culture and benefits. Atterro’s annual talent survey also reflected this finding, with 71.7 percent of respondents indicating that competitive pay is ‘very important’.
This leaves many employers wondering: what is the best way to determine a competitive salary?
How to Hit the Salary Sweet Spot
Employers need to find a healthy balance between offering benefits that appeal to today’s workforce, while leaving room in their operating budgets for competitive wages. There are several things your company can do to better analyze the market and hit the “salary sweet spot.”
1. Review salary surveys.
Using market data is a great way to get an idea of what your competitors are most likely paying similar talent. They are intended to provide general guidance in regard to appropriate salaries. There are several organizations that regularly release salary data. Choose a reputable source that adjusts rates for your local area. Hunter Hamilton releases an annual guide with salary ranges that are based on industry analysis and insight from a leading provider of compensation survey data.
2. Check supply/demand reports.
In addition to understanding salary ranges, you should also know the supply and demand for the position you are looking to fill. When the demand outweighs the supply, you need to adjust your job offers accordingly.
For example, according to a CareerBuilder supply and demand report for Q4 2016, there were 1,146 job postings in the Minneapolis/St. Paul area looking for “accounts payable” experience, yet there were only 228 active candidates with this skill. In an instance like this, the salary needs to be inflated in order to attract top talent.
3. Talk openly about salary with candidates.
One of the easiest ways to better understand what the market is demanding is simple – ask! During interviews, refrain from asking for a salary history. Instead, ask for salary expectations.
4. Find a local expert.
Partner with a reputable staffing agency in your area. In a tight talent market, they can help you find passive job seekers and fill in-demand positions. You can also rely on their industry expertise to set salaries that will meet or exceed other employers in your area.
How Salary Impacts Business
While a competitive salary is a benefit for employees, it also benefits employers. Those offering excellent wages have employees who are more productive and engaged. It also costs less to retain with an above-market salary than it does to replace.
According to the Society for Human Resource Management, research suggests that replacement costs can reach 50-60% of each employee’s annual salary, with total turnover costs ranging from 90-200% of annual salary. Using this data, if a 200-person company has a 15% turnover rate (30 people per year) at an average salary of $40,000, using a conservative 90% of annual salary turnover cost, the total loss to the company would exceed $1 million per year.
Today’s candidates are more informed about market rates and have expectations for what they should be paid. Follow the steps above and you’ll be better positioned to hit the “salary sweet spot.”