Employer Strategies to Succeed in a Candidate’s Market
Part 1 of a 2-Part Series on the Important and Timely Issue of Hiring in a Candidate’s Market
It’s a Candidate’s Market! We’ve all heard this statement, and many business leaders and hiring managers are sick of hearing it yet remain confused about how to properly address the current employment market. Business leaders want to know, “What does this mean and how does it impact my business?”
Many current leaders and hiring managers grew into their roles as the Great Recession began its correction and hiring began to ramp up. Throughout the recession and its recovery, businesses became lulled into a false sense of security that labor was plentiful and inexpensive. Now many are earning a new kind of MBA as they scramble to figure out how to navigate this employment market, meet the demands of customers, and still make a profit. After all, supply and demand impacts labor too. No matter what the market is: when supply is low, and demand is high, prices rise. Right? Well, sort of.
When it comes to a candidate driven market, compensation is always the big elephant in the room. We can look away all we want, but until we address it, that huge, gray, mammoth beast will just remain waiting to squash the deal you are hoping to close whether it is a hire, promotion, or even a retention bonus. From the standpoint of crafting offers in recruitment, where do you start? What do you do first?
If you try to address every compensation concern on a case-by-case basis, it is doomed to fail. We recommend you be proactive and develop a compensation philosophy.
Compensation Philosophy and Total Rewards
What is a compensation philosophy? According to the Society for Human Resources Management (SHRM), “compensation philosophy provides guidance to compensation professionals in the initial setup and ongoing maintenance of the compensation infrastructure.”
SHRM does provide concrete examples of philosophy structure elements that are typical of organizations and include setting target pay rates at some percentile of the market, providing incentives to meeting goals that deliver total direct compensation at a higher percentile, and long-term incentives such as stock options for senior professionals and managers when their performance aligns with shareholder objectives. Understanding the elements of a philosophy for your organization is critical to avoid the wild-wild-west behaviors around compensation that can bankrupt a company.
There are 2 core types of compensation: direct and indirect. According to SHRM, “direct compensation refers to wages paid to employees in exchange for work and includes wage and salary, variable pay and stock awards.” According to HRZone, indirect compensation is “non-monetary remuneration provided to employees including annual leave, overtime allowance, health insurance, life insurance, company car, and mobile and pension funds.” The combined compensation and benefits, along with personal growth initiatives, is commonly referred to as Total Rewards.1 Certain elements of a Total Rewards Program cannot be adjusted to meet changing market demands on a candidate-by-candidate basis as those elements are built and negotiated a year or more in advance and/or there are legal constraints preventing flexibility. Elements dealing with direct compensation and other incentives and initiatives can be customized to meet the changing market demands and tailor a unique offer for each candidate.
How can direct compensation be flexed to meet the needs of a candidate? We do not want to equate discussions of compensation with that of base pay. There are many ways to construct an offer that will be attractive and win the right candidate over the fierce competition. Instead of being fixated on base pay, flexibility can come in the form of:
- Bonus Incentives: If there are concerns about hiring too far outside the budgeted base, are there opportunities to adjust bonuses or commissions? Can you develop variable compensation appropriately tied to Key Performance Indicator metrics that provide revenue breathing room for you to compensate based on performance? When hires occur mid or end-of-year, can a guarantee of a minimal amount of bonus be made with flexibility tied to performance?
- Signing Bonus: When using a signing bonus, it is common to have an agreement with a claw-back option to help encourage the new hire to remain in their role. 1 year is standard, but there is flexibility depending on the size of the bonus and the level of the position.
- Retention Bonus: Developing a culture people want to work within is critical but more companies are layering in a retention bonus in support of a strong culture. The business rewarding an employee after 1, 3 or 5 years with a bonus goes much further than a plaque or “gold watch.”
- Relocation Assistance: The right talent may not always be within a reasonable daily commute of the work location and not every role is best performed remotely even if you are willing to let some roles perform at remote locations. Are you willing and financially able to provide a proper level of relocation assistance? This does not always have to be a full-pack move with a home purchase. A far less expensive option is a lump-sum relocation payment net of taxes for the candidate. If you offer relocation, terms should be defined in a relocation agreement including a claw-back option to help encourage retention.
Being competitive in a candidate’s market includes the benefits and growth initiatives you offer, especially the indirect compensation elements of a Total Rewards plan, which can often make all the difference.
Considerations When Developing a Total Rewards Plan
The size of your company has certain implications around what benefits you must offer or limitations on how much you can offer (e.g. PPACA, HIPAA, ADAAA, ERISA, et al. requirements relating to who must offer medical coverage, limitations on costs for wellness programs, and pension/401k maximums to name a few). Not every company is required to offer benefits, and your company can be competitive in the market with or without them. What you offer and the degree to which you offer them can be a differentiating factor and cost less than direct compensation. PERKS, or “privileges granted to employees in addition to their salaries and benefits”, according to businessdictionary.com, “…have little or no cash value or tax implications and may include work from home flexibility, company car, vacations, reserved parking space, spacious office, private dining and washroom facilities, etc.”
Now that your creative juices are flowing with options, be aware that “what’s good for the goose is also good for the gander.” If you start offering PERKS, customized bonuses and incentives to new hires differently than what exists for tenured employees, you may run the risk of exposing the organization to claims of discrimination. There are ways to deal appropriately with this by clearly defining the business case that differentiates one situation from another and treating others the same by offering the same to all who meet the defined business case. Be proactive and fair. If your employees are happy then they will remain with you for years to come.
It’s More than Base Compensation
Being competitive in such a strong candidate’s market includes direct compensation other than base pay, benefit programs offered and growth initiatives – the indirect compensation elements of a Total Rewards Plan. These are often more important than base pay in attracting and retaining talent.
Up Next – Part 2 of 2 of “Employer Strategies to Succeed in a Candidates Market.” Three core strategies will be detailed, which when applied properly will drive the best talent to your organization.
SOURCES: Society for Human Resource Management (SHRM), HRZone
1(Heneman, Ph.D., Robert L. and Coyne, Erin E.; Guide to Planning & Implementing Total Rewards; 2007; pg. 3)
If your company is ready to strategically address, improve and invest in the hiring of the most important part of any company – it’s people— please contact us today!