By Claudia St. John, SPHR, SHRM-SCP, President – Affinity HR Group, Inc.

As we look ahead to 2020, many of the challenges our clients faced in the past year are expected to continue into the New Year and beyond.  As an employer, here is what you need to know:

Hiring

As of November 30, 2019, the US unemployment rate was 3.5%.  The US Department of Labor generally considers an unemployment rate of 4% or less to be full employment, and 34 states now have unemployment rates of 4% or less. We haven’t seen a labor market this tight in 50 years. We anticipate that the market will continue to be tight for the year to come.

What employers need to do:

• Recognize that everyone who wants a job likely has a job, so your recruiting efforts should be focused on head-hunting
• Consider non-traditional candidates and those fresh out of high school and college. These populations have the highest levels of unemployment
• Focus on innovative ways to market your position and your company to prospective candidates

Retention

The importance of employee retention in this tight labor market cannot be over-emphasized. The Society for Human Resource Management estimates the costs to replace an employee range from 90% to 200% of the employee’s annual salary, depending on skill and experience.

Employee engagement is critical to retaining employees. Knowing what’s important to them can help you structure your workplace so that it supports retention. Information can be collected via survey, formal meetings, and informal conversations. Expect to hear “wants” like good supervision, clear and achievable goals and expectations, regular feedback, competitive pay and benefits, and flexibility in scheduling.

The concept of viewing employees as stakeholders as a way of increasing employee engagement is a game changer. Employees who view themselves as stakeholders and partners rather than replaceable commodities are more likely to remain engaged and deliver high-quality work.

An increasing number of organizations use bonus programs as a retention tool. A 2019 Payscale survey reported that 73% of respondents used some type of bonus or variable pay program. Considering incentive pay, discretionary and non-discretionary pay for skilled and non-skilled workers, innovative technology such as same-day pay programs, debt forgiveness and student loan repayment plans all represent areas of opportunity for employee engagement.

What employers need to do:

• Begin the process of employee engagement by collecting information through appropriate formal and informal channels
• Review current pay policies and benefit programs for competitiveness and anticipate the need to increase wages and enhance benefit programs to recruit and retain
• Consider developing a bonus program(s) for 2020 with an anticipated 2021 payout date
• Research innovative technology, benefit programs, and incentive ideas to support engagement

Compensation

Wages grew 3.2% - 3.4% during the second half of 2019, and similar growth is projected through 2020.

Increases in wages for entry-level workers were driven by minimum wage increases in nineteen states during 2019 and also by increases in starting salaries implemented by large employers. The table below shows the current minimum wage at several large retailers:

Starting salaries for college graduates also grew in 2019. The National Association of Colleges and Employers (NACE) reported that the average starting salary for the Class of 2019 fall graduates is $55,280 – 10.6% higher than for the class of 2018.  Starting salaries for Business majors currently average $53,912, up 3.9% over 2018, and salaries for Computer Science majors currently average $81,292, an increase of 10.2% over the last year.

These wage increases can lead to a two-edged sword for employers: salary compression and job hopping.

Salary Compression - Successful compensation programs are both externally competitive and internally equitable. Recruiting top talent in a tight labor market often means you have to pay top dollar to hire a qualified candidate. That may mean the employee you hire tomorrow will end up making a higher salary than current employees doing similar work. It may also mean that the new hire earns as much or more than employees doing higher level work that requires more skill and experience.

When these situations occur, salary compression exists. It is a complex issue that doesn’t have a single solution.

Job Hopping - A related problem involves job hopping. Research consistently suggests that most employees who are working want a 10% to 15% salary bump to switch jobs. Those expectations aren’t unreasonable, especially in a tight labor market. Over the past 10 years, employers have raised pay on average 3% or less per year according to PayScale’s 2019 Compensation Best Practices Report. Considering an annual inflation rate of around 2% during that time, most workers are netting 1% or less. Meanwhile, according to an ADP Workforce Vitality Report, employees who switched jobs saw a bump in pay of 5.3% on average during that time.

So, if you’re adhering to average or below average market rates and paying nominal annual increases, chances are you will be facing high turnover and significant wage compression in 2020.

What employers need to do:

• Anticipate the need to increase wages to recruit and retain talent in 2020
• Review current pay policies for competitiveness in the recruiting market(s) and internal salary equity with current employees and new hires
• Consider salary adjustments for current employees to address internal equity issues
• Make sure annual pay increases stay well ahead of inflation
• Consider one-time salary payments (e. g. sign-on payments, special incentives) for new hires to address issues of external competitiveness and internal equity
• Understand who your competitors are for talent in your recruiting market(s) and remain informed of changes to their salary policies
• Look for innovative incentives, benefits, and workplace enhancements to attract and retain candidates

If you’re having a difficult time managing your compensation programs, assessing employee satisfaction, or recruiting and headhunting for qualified talent, don’t hesitate to contact Affinity HR Group.  We’re here to help!

Claudia St. John is president of Affinity HR Group, Inc., NAWLA’s affiliated human resources partner.  Affinity HR Group specializes in providing human resources assistance to associations such as NAWLA and their member companies.  To learn more, visit www.affinityhrgroup.com.