Retaining Your Workers Through Paying a Competitive Wage
When we completed our global 2022 Culture Report, our goal was to understand the behaviors and attitudes of employees surrounding their work. We surveyed hundreds of global workers on ten different factors that might impact whether they might want to stay in their current job or look for a new one.
Given the post-COVID economic climate, rising prices, and vast numbers of workers participating in the Great Reshuffle, we expected that higher wages and better benefits would be the number one most important thing to global workers. However, as the report shows, wages and benefits are only fifth in what workers are searching for. The first four priorities, a respectful and supportive manager, a positive and inclusive environment, reduced stress and improved wellbeing, and a company and owner they can trust, were all covered in previous articles, so today let’s get into some of what you should know about wages.
We understand that pay is a sticky subject for many leaders, but it is critical that we talk about some of these important factors. First and foremost, your employees must be paid a competitive wage. For most employees, this means being paid a fair wage for their experience, role, and industry. Paying your employees a competitive wage is the price of running a business, and while paying lower wages might help your short-term bottom line, it will ensure your people are more likely to leave you, or at the very least, become disengaged or less productive – the “quiet quitters” we’ve heard about over this last year. In addition, the cost of finding, hiring, and retraining an employee is real; therefore, underpaying staff is just not good business.
Now, this is not to say that paying absolute top dollar will give any extra benefit to your employees’ engagement. Remember, our survey found that wages were only fifth in importance to your people, and other factors in their employee experience may take precedence, as long as their wage is competitive. If all monies are distributed in the pay, there would also not be room for performance-based approaches to compensation, such as bonuses or other rewards. So, once wages are competitive, ensure to focus on the rest of the employee experience.
We’ve mentioned a competitive wage – it is very important that organizations assess and understand what a competitive wage looks like for each position in their industry and their location. We are recommending companies do a thorough review at least once per year. We also highly recommend working with your local competitors and sharing payroll data, so that you are able to determine what a competitive wage is in your local community. I know this will be hard for many leaders—pay is difficult to discuss in the best of situations. But no one benefits when local companies engage in a wage war for talent. So, our first advice when it comes to wages is to be aware of and stay updated on what a competitive wage is for each position.
The next important recommendation is to ensure you do not tie people’s wages to tenure. Giving people an annual raise without any consideration for labor rates or performance criteria will simply add unnecessary costs to your bottom line. In addition, without adding in any performance considerations, you may end up with some of your most average performers who have the most tenure earning the most, which is clearly not a strategy to attract younger people today.
So, should you tie your wages to performance? If you have clearly defined performance criteria, then yes, performance-driven wage raises can be a positive. But as we’ve found with many of our clients, performance criteria are seldom well-defined enough to be a useful factor in wage determination. Performance is defined by completing tasks or achieving goals against the values of the business. In other words, it is about “what” is being done and “how” it is being done. While many businesses report that they are using performance-based criteria, the reality is, people are simply given annual increases for tenure. We would argue that people should be given wage increases when the labor market increases, which may be more often than an annual performance review.
In an ideal world, we would suggest not even tying wages to performance, but simply just to the labor market. We have found that performance is better recognized with rewards, incentives, bonuses, raises, or promotions. These are all things that could easily be modified based on the success of your business. With a comprehensive reward system, you can ensure that your top performers are out-earning the industry and location, but if the company’s financial position is tight, it’s much easier to remove incentives or reduce bonuses rather than remove your highest earners.
We know pay continues to be a complex issue, especially while there is so much pressure from staff to earn more in these difficult economic times. Be assured that a comprehensive wage strategy based around a competitive wage and thorough rewards program will allow you to easily keep your best people. Last, keep in mind that money is not everything—as you now know, the way managers treat people, a positive and inclusive work environment, focusing on worker wellbeing, and becoming an employer your people can trust are all more important factors in attracting, retaining, and engaging your best people. Keep the main things the main things and your employee experience will show the difference.