When companies look at market indicators for remuneration insights, they see the following:
An unemployment rate that fell back to 3.5 % in February, with 64,600 jobs added in February Australia-wide;
Almost as many job vacancies as unemployed people, resulting in longer times to hire;
A net migration of over 400,000 people in 2022, with companies still playing skills-catch-up from the pandemic years (Westpac predicts that migration will slow slightly in 2023 to 350,000 people and will fall in 2024 to 275,000).
They also see inflation, interest rate increases, stock market volatility, large scale retrenchments and some concerning overseas bank failures/ last minute rescues.
When they look internally, they see the same constraints that have affected them over the last 3-4 years, only they are more acute:
An increasingly ambitious top-line growth agenda vs shortage of available skills and increased employee mobility/ turnover;
A need to balance the high cost of wages with increased productivity / technology solutions;
The need for senior and experienced skills with a trusted track record in key and/or senior roles vs the historical lack of a sustained development pipeline which was further weakened by the Covid border closures.
Our Remsmart-backed insights tell us the following:
In short – they see a seesaw of competing factors which has created uncertainty and hesitation about remuneration decisions. As a result, most companies have tried hard to line up pay with the market, or sometimes slightly above it.
Leaders are being challenged to move quicker than ever from project phase to profitable operations, whilst also embracing technology and operational innovations; achieving measurable sustainability goals; and striving for safe and human-centric work design.
In these circumstances, paying to market may work for most roles, but not for skilled professionals or leaders with a track record of achieving success. There are not enough of them out there, they know their value, and offering them the market average is not going to attract or retain them.
So, what can companies do better and differently?
Pay much, much more for key roles, and do this deliberately
Define what the critical roles are, and who the critical talent is, and decide to pay a premium for these. Many companies will argue that they already do this, but often the difference between the pay for the critical roles/talent and the important roles/’good enough’ employees is 10% or less. Over the years of grading and salary scaling, companies have rightfully become wary of creating outliers. We argue that for good, objective reasons defined by a critical role and talent process, companies and boards should not be afraid to move the pay needle. The right leaders will manage the risk and costs associated with complex growth, and will add value beyond their costs.
This deliberate pay differentiation can be applied to base pay and/ or STI’s and/ or LTI’s – depending on role and the strategic requirements.
Pay them for leadership continuity
We have seen an increase in the frequency and number of sign-on bonuses, one-off ‘thank you’ payments and additional productivity incentives. However, the need for job security remains a key retention lever. Paying a longer-term retention bonus, linked to ensuring continuity during critical phases of growth and change is a key attractor. Again, this needs to be done carefully, in line with the strategic aims of the business, and at a time when multi-year continuity is critical for business success. Not all roles or organisational strategies require a retention bonus, so once again, a critical and objective review of the value of role continuity is a key underpinning consideration.
Reward them for leading
Talented leaders want to make a difference and leave a legacy behind. Ensuring that their LTI objectives are co-created, and that they reflect purpose, growth and innovation will help nurture this. All too often, the LTI’s are repetitive, too financially focused and ‘handed down’ to the incumbents. Asking them to co-create more holistic (but still measurable) objectives that will also help them learn and grow will drive ownership and commitment.
In conclusion, we believe that, in this time of both growth and uncertainty, hedging one’s remuneration bets is important, but not always, and not for all roles.
It may be worth considering doing something more – and different - for some key roles and people. Provided pay decisions are rigorous, aligned to business need, and are tracked to determine value; deliberate pay differentiation - and doing something different for some key roles - may be a win-win remuneration strategy.
In today's rapidly evolving work landscape, companies must adopt an agile approach to their remuneration strategy and develop new capabilities to stay competitive.
At REMSMART, we recognize the importance of aligning your workforce agenda with your business strategies and market trends. We leverage our REMSMART data driven insights and expertise to assist your organization in adapting to the shifting work paradigm. By integrating your business and HR strategies, we enable progress towards achieving your goals.
Working with REMSMART gives you access to thought leadership, in-depth expertise, market knowledge and insight, as well as our established market remuneration databases, tools and frameworks.
If you are interested in learning more about how we can help your organization anticipate future remuneration and workforce trends, please feel free to contact me at allan@remsmart.com.au
I would be happy to discuss our remuneration-based consulting services and how they can be tailored to meet your specific needs.
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