Compensation During The Great Resignation

In this article, I’m going to discuss how to fairly compensate your employees for better recruiting and retention. Gone are the days of paying people “not to leave”. Leaders need to understand their team’s worth and how to keep them fairly compensated. Remember that compensation is just one piece of the greater picture, but it is an important one.

If you’ve been working or not during the last 2 years, you have no doubt heard about The Great Resignation. Employees are realizing their worth and taking their destiny into their own hands. This has shown up in a few ways. People are looking for career changes where they can find higher wages. People are starting their own business to be their own boss because they can’t find one they like. People are leaving their current company for what they believe is a better one because their values have changed. Whatever the situation, power has shifted from employers to employees. If you want to stay competitive you have to rethink how you approach compensation.

I hear it all too often where someone threatens to leave and that’s when an employer starts to throw money at them. Or when an employer is looking at annual comp increases, the philosophy is based around inflation (or cost of living increase) or to pay them enough so they don’t leave. What many employers don’t understand is that this philosophy can actually cost them more in the long run. I’m going to share with you what I’ve learned overtime and how I’ve built teams with the lowest turnover at Fortune 500 and start-up companies.

These 3 questions are powerful in determining how to fairly pay your employees.

How much would you pay to keep them?

We are starting with the biggest question first. Why this one is important is because this helps you understand the overall value of this person. All of the skills, institutional knowledge, the investment of time, all of the things that make that person who they are to your company would influence this number. If they told you tomorrow that they were thinking about leaving, how much would you pay them to stay? $5,000? $10,000? $20,000? Why wait then? If you would pay them $10,000 to not leave, why not give that to them now? Why wait until they are unhappy and looking for another job.

If you value them that much, just make that part of their salary and show them that you value them that much. If it’s not in your budget to do so, give them what you can and explain why. Be super transparent about it and then tell them why they are worth that much more to you and your business. The most frustrating part about this one is so many employers wait until someone threatens to leave or already has another job offer in hand. Don’t complain about team members leaving if you are not being proactive about keeping them.

How much would they get somewhere else?

This is where you may need help from your People Operations or Human Resources team. You should have salary information for similar roles on your team. I don’t really trust websites like salary.com or others since they tend to have lower salaries than when I have actually seen people’s real compensation, but if that is all you have access to, know that it is likely on the lower end of the spectrum. When you have this information, you should look at what your employee is making and make sure that they are within those bounds based on their level of skills and their experience.

I look at skills more, but years of experience do come into play for some roles. I also try to look at the actual job descriptions to make sure the comparison is apples-to-apples. I have a philosophy when it comes to hybrid roles that I will share in another post. Also, since remote work is the new normal, make sure you are using as much local information as possible. The cost of living is wildly different depending on where you live, and you may want to pay them more or less based on their location.

How much would it cost to replace them?

This one combines a few things from question 1 and 2. By asking yourself this question, you will have to consider the salary ranges from question 2. If you are hiring someone from outside of your organization, they should know the fair market rate for their skillset so you will likely be paying someone new what the market says they are worth. If you weren’t paying your former employee this, you will have to pay your new employee this (so what are you saving again?).

The other part of this is a new employee will need ramp up time, training, benefit on-boarding, etc. All of the things that come with being a new employee. What time and output will you be losing by having to on-board someone completely new? How long will it take them to be as productive or more productive? Can you afford any delays? Employees are not simply replaceable. There is a cost to doing this financially, but also from a morale perspective. If that team member was a big part of the team or someone that everyone looked up to. If they were a mentor to some or a role model. How do you make up for that gap in trust now? There can be a ripple effect from someone leaving that can’t be quantified.

So I hope these are some ways you can think about compensation moving into the new year. Like I mentioned before, this is just one piece of building and maintaining a high performing team. But it is also the most straightforward. It is as simple as paying them what they are worth now and not waiting until later.

This is also why I am not a fan of the bonus structure, because it is a carrot to dangle. If you know what a team member is worth, why would you rely on a bonus to hopefully make up for what you haven’t paid them all year? Many companies have done away with the bonus structure and have “all-in” compensation. That means their annual salary is all cash because that is what they are worth.

If you have any thoughts or other strategies you use to evaluate compensation, please share them below.

Learn more tips like this and more in my Prepared Leaders: Essentials for Effective Leaders course or my premium 6-Figure Leadership Course. Lay a strong foundation for leadership and get coached personally by me, Rico Nasol.