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Why Compensation Might Be the Reason Your Employees are Leaving
Al Lopus : April, 26 2022
Why Compensation Might Be the Reason Your Employees are Leaving
What do you think when you see signs saying, “Help Wanted” with a generous starting hourly wage on the fast-food restaurants you drive by? You may notice that the hourly wage they mention is either more than or the same as the entry-level wages at your organization. Have you thought about how the rising prices of gas, food, and other essentials impact your workers? In a competitive labor market, your employees have choices.
Even if you are not yet thinking about adjusting your compensation plan in the next year, your employees probably are wondering how their paycheck will stretch to meet their needs.
Rewarding compensation that is equitable and fair is always part of a flourishing workplace culture that fosters employee engagement. But in our current economic climate, this topic needs to be top-of-mind for organizational leaders, not just human resources managers.
Developing a compensation philosophy and creating a robust compensation package takes time and intentionality. Start taking steps in this process today.
In this blog post, we will address the issue of employee compensation as a timely focus for workplace leaders. The importance of having a comprehensive compensation philosophy is not just a topic for human resources leaders, but it impacts the whole organization.
- Multiple factors make compensation an important topic right now:
- Inflation is now an issue in everyday life, in a way that has not been true for decades.
- A tight labor market means increased competition for workers and upward pressure on salaries.
- Your employees have other options in the labor market.
- Rewarding compensation is one of the drivers of employee engagement and flourishing workplace culture.
- Developing and implementing a compensation philosophy takes time.
- Communication with employees about the value of their compensation package is important.
- There are hidden costs in not addressing adequate compensation.
Now is the Time
Your employees are feeling the impact of inflation every time they go to the grocery store, pay utilities, pay rent, and fill up their car. The annual inflation rate in the U.S. accelerated to 7.9% in February 2022, the highest in 40 years. Ongoing supply constraints, strong demand, and labor shortages mean that inflationary pressure will continue in 2022.
While your employees are feeling the pressure of increased prices for everyday items, they also can read the signboards at fast-food restaurants and see offers of entry-level hourly wages from $15 - $20 or more, depending on your location. Last year I was sitting with leaders of rescue missions, and they said they were losing their entry-level employees to fast food restaurants.
Salary surveys show that companies are planning on a 4% increase in their payroll budget for 2022. But even this level of increase doesn’t keep pace with inflation. Several recent Wall Street Journal articles provide talking points for employees to use as they approach their employer and ask for a raise.
In addition, what has been dubbed "The Great Resignation" illustrates that employees are willing to quit their jobs and seek out alternatives. In the last half of 2021, more than 4 million people quit their jobs each month, a trend that is continuing in 2022. This rate of voluntary job turnover is the highest it has been since the U.S. Bureau of Labor Statistics began tracking this data in 2001. While pay isn't the only reason people leave a job, the trend does show a willingness to seek out changes in employment.
Based on Best Christian Workplaces Institute’s Employee Engagement Surveys, there are eight keys to a flourishing workplace culture. Independent researchers used the BCWI database to establish clusters of qualities that lead to flourishing. Rewarding Compensation is one of the eight keys to flourishing.
Flourishing cultures provide significant, tangible remuneration and benefits for employees' service. Equitable total compensation plans provide employees with peace of mind that their personal and family financial needs are being met and that their employer values their contribution. Rewarding compensation signals to employees that their service is valued for the long term.
Scott Wiggins, director of staff at Pinelake Church in Jackson, Mississippi, says, "Without inspirational leadership and a sustainable strategy, rewarding compensation is just window dressing that’s going to grow old, tired, and dull. You can pay people well, but if you don’t lead them, you’ve failed. But if you only lead them but don’t properly provide for them, likewise you’ve failed. You’ve got to do both.”
In considering inspirational leadership and sustainable strategy, which are two of the other eight keys to flourishing, Scott underscores the reality that there is an interplay between the essential factors in employee engagement. To dive deeper into rewarding compensation, and the other factors of a flourishing workplace, get my new book, Road to Flourishing: Eight Keys to Boost Employee Engagement and Well-Being.
Focusing on rewarding compensation for your staff is more than just adding dollars to the payroll budget. It takes time and intentionality to develop and implement a robust compensation philosophy.
Susan Griffin Byers is the founder of Church Compensation Services. On a BCW podcast, she shared the importance of having a compensation philosophy that guides compensation planning and decision making: “Many of the compensation principles from the corporate world also apply to nonprofits and churches. The goal is to ensure compensation programs are fair, equitable, defensible, and easy to administer and communicate. Very few nonprofits or churches have a formal written compensation philosophy, which is the foundation of a good compensation program.”
Starting from the foundation of a compensation philosophy, the following aspects of employee compensation are building blocks of a total compensation program:
- Define your labor market. Who are you competing with for jobs, not just in the nonprofit sector, but in your marketplace?
- Find relevant salary comparisons.
- Develop clear job descriptions and requirements.
- Have a systematic job evaluation process.
- Clarify other components of compensation beyond salaries—including benefits, bonuses, and other incentives.
- Develop a process for promotions, demotions, lateral transfers, and the alignment of external offers to new hires with existing salary benchmarks.
In addition to the practical aspects of compensation, your philosophy and procedures should be aligned with the overall mission and vision of the organization. Ultimately, compensation isn’t about money. It’s about respect and fairness.
There is a biblical basis for providing fair wages to workers. We see in Matthew 10:10 as Jesus is giving instructions to the disciples he sends out that “the worker is worth his keep.” Paul reiterates this idea in 1 Timothy 5:18: “For Scripture says, ‘Do not muzzle an ox while it is treading out the grain,’ and ‘The worker deserves his wages.’”
There are social norms that have made open conversations about salary and benefits taboo in the past. But recent research shows that Millennials and Gen Z are much more willing to talk about their salaries with their co-workers than Boomers. In addition, some states and local governments are legislating transparency in salaries.
While you may or may not embrace open conversations about salaries, BWCI consulting director, Giselle Jenkins, discusses her perspective developed while she was a compensation specialist at Prison Fellowship: “I would like to have our plan be so equitable that if I accidentally left it out on a desk and people saw it, there would be no surprises and no hypocrisy.”
Once you have developed a compensation philosophy and plan, it is important to communicate this to your staff, so they understand how they are compensated now and what potential growth they might expect in the future.
Supervisors and managers not only need to understand your compensation plan, but they need to know how to communicate effectively about the details of the plan and how it impacts the employees they supervise. There should be one message about compensation shared at all levels of the organization. Giselle Jenkins underscores the importance of training in how to communicate about compensation in a BCW article post: "It takes focused effort to communicate and train front level managers to make your compensation plan work. Train them so you never experience this trust-busting comment from a front-line manager to an employee: ‘I wanted to give you more money, but they (HR/Leadership, etc.) wouldn’t let me!’”
In addition, make sure that there is clear communication to employees about the value of the benefits that you are paying on their behalf. Often employees are focused on their take-home pay but are not aware of the amount that their employer pays for their health insurance, retirement, paid time off, and other benefits. Ideally, each employee should receive an individualized total compensation statement at least once a year.
Hidden Costs of Not Addressing Compensation
As you have been reading this post, perhaps you are looking at your payroll budget and the rest of the expenses of running your organization and feeling like there is no way you can increase salaries. You can't see how to make the math work for a 4-5% salary increase that won’t even keep up with the current inflation rate.
While payroll costs represent real dollars, consider the hidden costs of an inadequate compensation plan. In today’s competitive labor market, your high performing employees are the ones most likely to be able to find other positions at higher wages. That’s why now is a crucial time to reconsider your compensation plan.
As I noted in my recent book, Road to Flourishing: Eight Keys to Boost Employee Engagement and Well-Being: “The cost of replacing an employee ranges from 20 – 213 percent of their annual salary, depending on the position. By comparison, adequately compensating your employees is a bargain. Compensation probably isn’t the reason your best employees stay, but it may well be the reason they leave. They don’t usually need to be highly paid to be engaged in their work, but being paid beneath their peers—or worse, struggling to make ends meet at home—becomes a distraction that siphons away their energy and commitment and eventually becomes impossible for them to ignore.”
So rather than an expense you cannot afford at this time, perhaps addressing compensation is a strategic move you must consider now!
If your organization does not have a compensation philosophy and detailed plan, or if it hasn’t been reviewed in recent memory, bring this topic to the forefront at your next leadership meeting. Affirm the importance of this with your human resources director, while you also emphasize that this is an organization-wide effort.
Realize that there may not be a quick fix for rewarding compensation. Make a commitment to move forward on a plan that you can implement in stages over the coming months and years. Schedule time for the salary comparisons, job descriptions, and other details mentioned above that are part of your compensation system. If you cannot adjust base salaries to be competitive in the near term, consider bonuses that acknowledge the pressure that employees are feeling in their monthly budgets.
Communicate with your staff team and affirm the value of the work they are doing on behalf of your organization. As you move forward with a compensation plan, continue to share milestones with your employees. Above all, stay focused on the goal of a fair, equitable compensation plan that acknowledges the importance of the people on your team to the overall mission of your organization.