Why businesses need to evolve their pay strategies to compete for talent

Amidst ongoing economic uncertainty, Tony Guadagni explains how monetarily disadvantaged employers can compete in an increasingly competitive market

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We are experiencing a period of severe disruption to our lives; the cost-of-living crisis, economic uncertainty and the geopolitical situation has created a turbulent environment for organisations and employees. This coupled with the shift to hybrid working – where workers have fewer social ties and less geographical restrictions when it comes to jobs – has resulted in significant employee turnover.

The high turnover environment has created a fierce war between businesses to attract and retain the best talent. Our research has revealed that the total number of job postings in the UK has increased by 61 per cent in the past year and 32 per cent of job candidates today are considering at least three offers.

Sadly, it is those hit hardest by the economic downturn who are suffering most in the talent battle, as they find themselves unable to match the financial packages of what are often larger and more diversified corporate firms.

This year Gartner HR surveyed 157 executives to understand how they are addressing inflation concerns, with 63 per cent planning to make compensation adjustments in response to high inflation. Businesses need to resolve these issues to avoid critical skills gaps over the coming years. But how can monetarily disadvantaged leaders compete in an increasingly competitive talent market?

Paying with time

In the past, companies were guilty of treating employees as resources, tracking their performance by the amount of time they would dedicate to the job. It took the change fatigue and burn-out woes of the pandemic for businesses to recognise the value of rest and recovery on employee outputs.

Research shows that reducing working hours and increasing rest periods delivers overall improvements to the quality of work and productivity. It also delivers a significant spike in morale, and it is for this reason that work-life balance has become an important attraction and retention driver that businesses can leverage.

Employers must start thinking of time as a commodity that can be used as a new means of attracting talent and look for new innovative ways of freeing up time. Many companies have already started – there have been widespread trials of a four-day work week across the UK, Iceland, Spain and the UAE where pay remains flat but working hours are reduced.

This approach is becoming more common but there are some innovative solutions that organisations can use to create a competitive advantage. Organisations could guarantee a maximum workload for employees, allowing them to focus on crucial tasks and promote wellbeing, or look at adjusting hours and pay in accordance with one another, such as 80 per cent of pay for 80% of the workload.

Providing new incentives 

Providing more time to employees is just one part of the equation; organisations also need to look at ways to reward and demonstrate appreciation for their staff.  Businesses have heavily relied on pay increases to achieve this in the past, but there are other ways of rewarding employees that are less damaging to the company’s bottom line.

For example, financial incentives can be provided to employees by way of spot bonuses rather than salary increases. Such an approach can be quickly implemented and have less of an impact on the long-term profitability of an organisation. These incentives do not always need to be performance based – businesses could offer retention bonuses or stocks and shares schemes to incentivise loyalty.

These rewards do not need to have a financial element either. In a post-Covid world, the line between professional and personal lives have been blurred and employees value businesses who understand and invest in their personal wellbeing. A company could provide benefits to individual employees such as supporting a certain charitable cause they are fond of or helping them pursue a certain interest/hobby, thus demonstrating care for the employee on a personal level.

Organisations must continue to invest in talent in spite of the economic downturn, but the key is to move away from generic company-wide initiatives and discovering new ways of rewarding employees that are more personal and authentic (whilst being more cost-effective than bumper pay rises).

Investing in skills development

Benefits and rewards help businesses provide important morale boosts to employees, but it is important for companies to also make long-term investments in staff. The pandemic gave people time to re-evaluate what they want from their lives and careers, and for many, the development of new knowledge and skills has become a priority.

In a recent survey, Gartner found that 79% of employees in EMEA are interested in external roles, while only 37% are interested in internal roles. Current options are not satisfying employee needs, which is demonstrated by 65% of staff rethinking the role of work in their life. Businesses have an opportunity to boost retention by helping managers conceptualise the potential career paths and provide them with new development opportunities, including training, mentorship and objective reflection to create best-fit careers.

Businesses have a great opportunity to boost retention by helping managers conceptualise the potential career paths of their direct reports and providing them with new development opportunities through training and mentorship schemes.

Organisations can apply the same ‘skills development’ philosophies to the recruitment process, hiring for potential rather than experience. Traditionally, businesses use a set of predictors to filter potential candidates, such as education, experience and location, but by looking more closely at adjacent skills and interests, they can tap into non-traditional talent pools that are outside customary recruiting hot spots.

Over half of HR leaders report that they are constantly trying to keep up with the learning requests of the business. By re-evaluating the definition of ‘qualified talent’ and pursuing a dynamic skills strategy, companies can become more agile to shifting skills needs, keep staff engaged and motivated and continue to fill talent gaps.

The majority of firms are not equipped to deal with the current volatile labour market. 53 percent of Chief HR Officers (CHROs) have identified the talent shortage as the top trend impacting organisations today, and only 19% said they are ready to address these shortages.

What these companies need to understand is that the high employee turnover rates that we are witnessing today has been exacerbated by the geopolitical and economic crisis and not caused by it. The nature of hybrid work and more flexible work patterns means that a hyper competitive talent market represents a permanent shift that they will be dealing with for years to come.

Even after the economy steadies itself, employers will not be able to rely on compensation packages alone to attract talent. In what is a small silver lining for financially troubled organisations, today’s employees expect more than just money – they are thinking more holistically and making decisions based on work-life balance, flexibility, development opportunities, wellbeing initiatives, company stances on the issues of the day and so on.

There is a much larger playing field for businesses to compete on for hiring and retaining talent, and it is time for them to evolve their strategies.

Tony Guadagni is a senior principal in the research department at Gartner