Consider Compensation a Strategy, Not a Cost

Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...

By Laime Vaitkus

Employers should see compensation as a strategy instead of an expense as the tightening labor market intensifies the need to attract and retain top talent, consultants say.

Companies that disregard the importance of compensation risk losing out on the talent they need, according to Jim Link, chief human resources officer at Randstad North America.

“The dynamic is changing and it is really related to what younger workers are looking for. Companies certainly need to be paying at or above the market rate to compete,” Link told Bloomberg BNA March 6.

Companies need to be more strategic with compensation if they want to hire and retain the right employees in the face of high growth, said Timothy Low, senior vice president of marketing at PayScale Inc. “It’s become a talent economy. The fierce talent competition is shifting the balance of power to candidates,” he told Bloomberg BNA March 6.

Wage Growth Picks Up

After years of doggedly slow wage growth, pay raises returned in 2016 and that’s likely to continue this year, Link said. Employees are increasingly aware of what the market rate is and organizations need to adjust to the new reality, he said.

“We are seeing a ferocious rate of change. In certain fields, it is a candidate-driven market,” he said.

Salary data from Randstad shows that many positions in the fields of science, technology, engineering and math have seen substantial pay increases in the past year, and employers need to keep up, Link said. Employers are increasingly unable to find the skills they need at the pay rates they’re offering, he said.

Offer Above-Average Raises

“Three percent raises are such a cliche. It’s not a bad number to use; it’s just not a very creative number,” Low said.

Companies are moving beyond the national average of 3 percent, said Low, who cited research from PayScale that found 10 percent of companies budgeted raises of more than 5 percent this year and 11 percent actually gave them. In addition, more companies are giving increases that are over 10 percent, he said.

“We are seeing everyone offer different increases; it’s a promising sign,” Low said.

Organizations are checking market data more frequently to ensure that pay levels are up to market levels, particularly as compensation for certain skill sets fluctuates over several months, Low said. PayScale data found that the salary for one skill subset in the technology sector jumped by 29 percent in one year, he said.

The market dynamics are reflected not only in a job title, but also in the skills and competencies within that title, and companies need to remain aware and pay accordingly, Low said. “Hot skills don’t stay the same, and new skills come into place. If you don’t know that certain skills are actually worth more, you may be paying under market rate. Companies have to be paying strategically for certain positions,” he said.

Pay Matters Most to Employees

Compensation is still viewed as a cost center, but “if we don’t get compensation right, nothing else matters,” Jeff Laliberte, chief executive officer of software company PayFactors, said in a webinar March 7.

Compensation continues to be the number one factor in deciding whether to join or remain at a company, Laliberte said.

Retaining and recruiting talent is the top driver of most companies’ compensation practices, Laliberte said. “We are falling down in demonstrating the strategic value of what we do. Talent acquisition and retention is where compensation strategy can have the biggest impact,” he said.

The demand level for some jobs has pushed pay raises to as much as 10 percent a year, said Sarah Calabria, vice president of global compensation, benefits and HRIS at Monster. A company that fails to adjust its pay to be competitive will find their talent “is getting lured away,” she said in the webinar.

“Getting your talent in the door at a competitive price is essential; having a 3 percent merit budget isn’t going to cut it,” Calabria said. It’s a challenge to think about total rewards in a different way, she said. “But times have changed and if you are not keeping up, it’s costing you. Talent acquisition and retention is where compensation strategy can have the biggest impact,” she said.

It Takes More Than Money.

Smart companies find they can attract far more job candidates by offering a competitive salary, but it’s only one part of the strategy to hold onto talent, Link said. Pay will get candidates through the door, but organizations need to offer the opportunity for advancement, learning and development opportunities, and workplace flexibility and to support employees’ efforts to improve personally and professionally, he said.

Workplace flexibility and telecommuting are becoming vital tools to retain talent because of younger workers’ preferences and their willingness to change jobs, Link said. “The technology that they grew up with—they can have everything, everywhere at their fingertips. They expect their work to be similar to that. The idea to have to get things done in a particular place is a foreign concept to them,” he said.

“A lot of our clients are trying to figure out how to shift their own thinking and be prepared for the future,” Link said.

To contact the reporter on this story: Laime Vaitkus in Wilton, CT at

To contact the editor responsible for this story: Tony Harris at

For More Information

PayScale’s “2017 Best Compensation Practices” report is available at

Randstad “2017 Salary Guides” are available at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Bloomberg Law for HR Professionals