- Several companies have been raising salaries for open positions in an attempt to attract workers during a current labor shortage
- Raising wages can help attract talented workers and retain valuable employees, but increasing compensation must be done with caution
- Bonuses or improved benefits can be an alternative to salary increases
Summary by Dirk Langeveld
As COVID-19 vaccinations are distributed and pandemic-related business restrictions are lifted, business owners have started to encounter a conundrum. Despite high unemployment levels, businesses are often facing challenges in finding applicants to fill available jobs.
This situation has been attributed to various causes, including child care needs preventing a return to work or a lack of candidates with the necessary skills for certain positions. Some lawmakers have also blamed an enhanced federal unemployment benefit, saying it provides more income than workers might receive at low-paying jobs.
Some companies, especially large retail and restaurant chains, have responded by ramping up their wages in order to attract workers. Providing a higher salary can be an incentive both for finding new employees and retaining existing ones – an important consideration as one recent poll finds that one in four workers is thinking about finding a new job after the pandemic.
If you’re thinking about raising the salary range for your available job openings or giving your workers a raise, you’ll need to make sure you proceed cautiously. Salary increases can improve employee morale, but can easily backfire as well.
Setting wages
Establishing a salary range depends on numerous different factors. These include the education and skills needed to do the work, the competitive market rate for the job, whether job opportunities are scarce or abundant, and the competitiveness of the position, i.e. how many people with the necessary skills are available in the region.
The compensation should be enough to motivate an employee, as underpaying can diminish interest in the position or harm employee morale. Setting a fair salary helps attract and retain qualified workers, but you’ll also want to establish a pay system that promotes a team environment. A wide wage disparity within a team can easily lead to tensions.
When to give a raise
Employers might offer an employee a raise to demonstrate appreciation for their work and value to the company, as a reward for the accomplishment of a major project or goal, to incentivize them to remain with the company, or when the employee has been with the business for a certain number of years.
Employers should be transparent with workers about company finances to convey what salary increases might be possible. Deciding how much extra money a worker will receive depends on the company’s budget as well as the cost of living in the region, inflation, and the pay offered by your competitors.
While an employer may make decisions on salary modifications at certain intervals, such as the end of a fiscal year, they may also be approached by an employee with a request for a salary increase. Ask for time to make a decision, then research factors such as the employee’s pay compared to co-workers and their value within the company before making an offer.
While the current labor shortage has been driving up the wages offered by numerous companies, the trend could be short-lived. Labor shortages are expected to ease in the fall when in-person education likely resumes and supplemental unemployment expires, creating more demand for available positions.
Drawbacks of offering a salary increase
Naturally, you’ll want to make sure that you can afford to raise employee salaries. Increasing compensation without an increase in revenues can leave you in a financial crunch or force you to accept lower profits. You may also need to increase the prices of your goods and services, which could potentially drive away customers.
Once you increase the wages for a position, they’re likely to stay at that level. As such, you’ll need to prepare for a long-term investment if you offer a raise.
Make sure that any salary increases are fair and equitable. You can easily rankle employees if raises are concentrated on certain departments or income thresholds. At the same time, high-performing employees may be put off if you offer across-the-board wage increases, rewarding workers who are less productive or don’t have as many years’ longevity with the company.
Raise alternatives
Employers who are uncertain if their finances will support long-term salary increases can use other strategies to reward existing employees or incentivize new ones. Sign-on bonuses have also become a popular option for post-pandemic job postings, giving a one-time payment for taking on a role. Regular bonuses can also provide an incentive for your current workforce.
Companies have also been able to attract workers and improve employee morale by offering better benefits or perks, such as a generous time off policy or wellness program. Flexible work schedules and the ability to work remotely have also become more important to employees following their widespread implementation during the COVID-19 pandemic.
