How Compensation Can Attract Your Next Hire

As the cost of living continues to rise, compensation is one of the top factors for many job seekers when choosing their employer. This, in combination with a competitive labor market, means employers are examining their compensation packages in order to hire the best talent.

Current market conditions regarding compensation

As of June 2022, the unemployment rate was 3.6% according to the U.S. Bureau of Labor Statistics. This means for many industries, there’s two jobs available for every person. When it comes to comparing the best options, compensation and benefits are usually going to persuade the job candidate to look for the highest offer. Compensation is also a focus for 64% of people who are living paycheck-to-paycheck, according to a March 2022 LendingClub Corporation survey.

Different types of compensation available

• Base pay – the minimum amount an employee is paid for their work each year
• Commissions – money paid for achieving goals in addition to base pay or as sole income
• Overtime – payment for working over 40 hours per week which is often regular pay plus one-half
• Bonuses – paid to typically attract new hires, recognize performance metrics or year end goals
• Stock Options – employees generally get the option of purchasing company stock at a set rate 
• Benefits – may include health, life, disability, legal and pet insurance as well as retirement plans 
• Non-Monetary – might include flex-time, childcare, training opportunities, a laptop or cell phone

What is typically included in the total compensation statement?

A total compensation statement accounts for all the money that is paid directly to the employee, such as annual earnings and any bonuses. This statement also typically includes the value of other benefits which are listed as individual line items. Which shows the potential new hire the entire compensation package, including the cost the employer is contributing annually to health insurance, retirement and paid time off. The more detailed this statement can be, will give job candidates a clear picture of their total compensation package when they are comparing other offers.

What are new employees asking for now and why?

Two years after the pandemic, the labor force is going through a transformation with job seekers, especially Generation Z, looking for better opportunities. According to the latest data available from the U.S. Bureau of Labor Statistics Jobs Openings and Labor Turnover Summary, 4.3 million workers resigned in May 2022. Many job seekers are concerned that working in a job that doesn’t offer a competitive salary, a good work/life balance and flexibility won’t be a good fit for their overall well-being. 

With this competitive job market, many workers are also willing to change jobs frequently. In fact, 72% that were surveyed for The Muse earlier this year, said they experienced “Shift Shock”, which is when the job offered and the actual duties are vastly different. When these expectations aren’t met, 80% also said they were willing to leave their new job prior to the six-month mark. Also, 87% of young professionals who negotiated their salary were successful, according to Fidelity’s 2022 Career Assessment Study. Many companies are also offering raises mid-year to help address the higher cost of living. When decision makers in May were surveyed by the compensation consulting firm, Pearl Meyer, they found 4.8% was the total increase of annual salaries on average.

How do employers balance new and existing compensation?

Salary compression is when new hires are offered current market salaries that could possibly exceed the compensation of existing long-term employees, including their managers. When employers are trying to attract new talent this can cause inequity and resentment of employees who have seniority. Which can also prompt a review of the entire compensation structure to see how to balance salaries so an inversion won’t occur. 

According to salary.com, in order to avoid established workers from resigning, employers can narrow the monetary gap by increasing their base salary, awarding bonuses or placing them in a different compensation bracket. Employers can also offer other compensation such as stock options, additional time off or expanded benefits.

The benefits of higher compensation for the employer

Becoming known as a top employer – All workers are typically looking for employers who will fairly compensate them for their work, and also give them the opportunity to grow and advance in their careers. When companies demonstrate to job candidates they are aspiring to be an employer of choice, it will tend to attract the best applicants and make the company more competitive.

Increase retention rates – Employers who increase their retention rate will make the overall hiring process easier as continuous recruiting and re-training of staff is costly, and often slows down productivity. If the compensation and other benefits offered are sought after by job seekers, that usually reduces turnover and makes the workforce more stable.

Reduce hiring costs – According to April 2022 data from the Society of Human Resource Management (SHRM), the average cost for recruiting a new employee is $4,700, depending on the position. Employers can reduce hiring costs by keeping job candidates engaged throughout the interview process and conduct stay interviews to assess continuous job satisfaction after they’re hired.