9 minute read
Compensation Trends for 2022
Several articles have been written about the increasing number of retiring Baby Boomers during the past few years. The middle range of Baby Boomers (1946 to 1964) born between 1955 to 1956 have reached or will reach full social security retirement age of 65 to 66 and 3 months. The Pew Research Center completed and released some studies on the rise of Baby Boomer retirements in 2020 and 2021. Based on Pew’s research, Baby Boomer retirements were 3.2 million more in the third quarter of 2020 than the same quarter of 2019. More recently, during the first quarter of 2021, 30.3 million Baby Boomers report that they were out of the workforce due to retirement.
The COVID pandemic heighted the exodus of Baby Boomers from the Workforce due to layoffs and discharges associated with business closures and reductions. Baby Boomers are not returning to the workplace because they have run the numbers, rolled the dice and made the decision to stay home for financial, medical, family and personal reasons. Baby Boomers returning to work in 2021 are filling previous full-time positions and some are opting for part-time positions so they can knowledge-share and mentor the upcoming workforce generations.
From a compensation perspective, most of the remaining Baby Boomer employees are paid in the upper percentage quartiles of their respective position pay ranges due to longevity, experience, mastered skills and knowledge gained during the past 35 plus years in the workforce. As the Baby Boomers continue to retire, employers will have the opportunity to redirect high 4th quartile pay to new employees that are entering the organization in the 1st and 2nd quartile of the respective pay grade and range or close to market pay based on incoming knowledge, experience and skills.
Business owners and executive leadership teams have about nine more years for the remaining Baby Boomers to make their final decade of workforce contributions. Plans for knowledge and skills transfer, mentoring and taking-initiative training will be critical for business success and talent development as the Baby Boomers exit to spend time on the beach, in our national parks and forests and with their families.
Rising State Minimum Wages
A U.S. News and World Report article titled “24 U.S. States Will See A Minimum Wage Increase in 2021” was released on August 2, 2021 and written by Andrew Soergel and Sarah Clarke. The article provides detail about state legislated minimum wage increases from 2020 to 2021 for 24 states. Based on minimum wage data provided for the 24 states in this article, the average 2020 minimum wage of $10.45 will increase to $11.19 in 2021. This represents a 6.16% increase. The state with the smallest 2020 to 2021 adjustment is Minnesota with an increase of $10.00 to $10.18 for large employers and $8.15 to $8.21 for small employers. Out of the 24 states, 6 states increased 2020 to 2021 minimum wages by $1.00 and 6 states by $0.75. The top four states with a 10% or higher adjustment include the following: According to this article, exclusive of Washington, DC with a $15.20 minimum wage law, the states with the highest minimum wage requirement are California, Washington and Massachusetts with $14.00, $13.69 and $13.50 respectively.
State
Virginia 2020 to 2021 Minimum Wage Adjustment $7.25 to $9.50
New Mexico $9.00 to $10.50 Percentage Increase 31.03%
16.67%
Illinois $10.00 to $11.00 10.00%
Pay Compression
Private sector and especially public sector entities are experiencing pay compression issues associated with increasing minimum wages being driven upward by federal and state minimum wage legislation, living wage concept momentum, supply and demand dynamics for skilled and unskilled labor, local or regional market pressure on starting wages and rising inflation being pushed by COVID pandemicrelated economics.
We have a municipal client where the Transportation and Street Department Director asked, “How do we compete in the marketplace for maintenance positions when an employee gives notice to go work for Olive Garden as a waiter and averages approximately $17.00 per hour with tips?” In addition, we have city and county clients with detention centers, and the number of Jail Deputy position openings is in the double digits.
Typically, pay compression issues evolve over a long period of time but the above stated factors associated with rising wages for the lower pay scale grade range positions have shortened the time frame for pay compression issues between newly hired and more tenured employees.
Solutions to address pay compression issues can include adjusting the organization’s whole pay structure, the lower half or one-third of the pay scale, or a more focused approach with consolidation of the lowest two to three pay plan grade ranges. This is where starting wages are increasing from about $11.00 to $13.50 per hour and some cases near the living wage level of approximately $15.00 per hour.
An internal assessment of pay policy/practices and external analysis of market pay conditions will offer greater insight on why and where pay compression issues have evolved and what steps can be taken to eliminate or mitigate pay compression issues without lowering employee morale and/or creating significant position and pay inequities.
Public Sector (COLAs vs Merit Pay)
The U.S. Department of Labor defines merit pay, also known as pay-for-performance, as a raise in pay based on a set of criteria set by the employer. This usually involves the employer conducting a review meeting with the employee to discuss the employee's work performance during a certain time period. Merit pay is a matter between an employer and an employee.
A majority of our public government municipal and county clients do not utilize merit pay as the primary method for annual pay adjustments. They use a combination of a percentage for a Cost of Living Adjustment (COLA) and a percentage for merit or mostly a COLA for the annual employee pay adjustment.
We are seeing a shift in pay for performance philosophy with our public sector clients in support of performance appraisals and corresponding merit pay adjustments as they step-up their efforts to compete with private sector businesses and organizations for the attraction and retention of talent.
It is not unusual to hear statements like, we can no longer afford to pay for “people in seats” or reward employees for “one more year” of service replaced with comments about rewarding top performance and the use of critical skills, knowledge and abilities that produce higher levels of individual and company achievements and top level customer service.
budgets that we will see the overall average for employee pay adjustment average above 4% instead of annual average that has hovered around 3% over the past ten years outside of the last two COVID pandemic influenced years.
Staffing and Pay Analysis Audits
With the combination of labor market demand exceeding supply and various economic factors influencing rising employee average wages, we are seeing more organizations requesting staffing and pay analysis audits. These audits are prompted by organizations that are identifying risks associated with unfilled positions, higher levels of turnovers, understaffed or overstaffed departments, competitive compensation, living wage plus compensation, total rewards offerings and internal pay equity. One of the most frequent questions being asked by staffing and pay Requests for Proposals is, “Can we reduce our staffing levels and increase pay for our remaining staff?”
In preparation of this article, we researched online for staffing and pay analysis audits and found a Pay and Staffing Analysis report prepared by the Office of the City Auditor for the City of Tulsa, Oklahoma.
The City of Tulsa staffing and pay analysis audit was tasked with answering the following questions: • Do we provide reasonable pay to all our employees? • How does our total compensation compare to others? • How do our hiring costs compare to the cost of retention through consistent raises? • What methods do we use to determine sufficient staffing? • Do our staffing levels align with the priorities of our strategic plan? • Do we provide any services that are non-core and not aligned with our strategic plan? Some of the City of Tulsa staffing and pay analysis audit recommendations are noted below:
1. Consider establishing a minimum pay standard after determining what percentage of responsibility an employee’s pay should cover for other family members’ basic living expenses.
2. Consider raising compensation for positions that are consistently paid below all other surveyed governments.
3. Consider continuing dedication to consistent annual raises of at least 2% and rejecting salary freezes as a method for cost savings in future budgets.
4. Consider creating standard criteria for establishing optimal staffing in non-sworn departments.
5. Consider evaluating department divisions at a service level to determine whether any services within department programs are non-core or not aligned with priorities established in the strategic plan.
6. Consider conducting analysis of vacancy rates per non-sworn departments. This should include the amount of time budgeted positions are held open before filling and the amount of time exited positions are held vacant prior to hiring replacements.
We can look back over our management and human resources work careers spanning for more than 40 years each and see that each year has had its own unique challenges and opportunities. It looks like 2022 is projected to have its own distinctive stamp on compensation for all the reasons stated and not stated in this article.
Helping clients envision new possibilities is a talented consultant's greatest asset. At Johanson Group, our combined 65 years of experience in all facets of business management enable us to offer the insight and direction that produce meaningful results.
We've helped organizations face the management challenges that come with a rapidly expanding staff and customer base. We also assist new business ventures map out their company's future, both strategically and operationally. Our signature approach is to listen and fully understand your company so that we can then partner with you to realize your own unique vision. DBSquared combines proven technology and seasoned expertise to help bring your total compensation management into perspective. We provide: DBCompensation® (built on the proven Job Evaluation and Salary Administration Program JESAP™ methodology) is a stateoftheart HR compensation management software application that efficiently combines internal knowledge and expertise with pertinent market information to streamline your compensation strategy and policies. Ultimately simple and elegant, DBCompensation is easily integrated into your business strategy and HRIS environment. Our proven methodology and process combined with thorough and intuitive software development ensure you'll never look back. DBDescriptions™ job descriptions software is the cornerstone of an efficient and aligned organizational design. Whether you need one job description or two hundred our database of descriptions has exactly what you need to adapt or create tailored descriptions for your business; all easily accessed through an intuitive webbased application. Utterly simple and efficient.
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