The Gap Between Supply and Demand Widens
It’s no secret that the volume of job openings far outpaces the number of applicants. The Wall Street Journal says there are nearly five million more job openings in the U.S than there are people looking for a job, and a record rate of people are quitting their jobs.
While this trend may be positive for job seekers who now are in the driver’s seat, employers are trying to determine how to compete for those workers while keeping headcount budgets in check. Companies are in a growth position, yet market prices for talent are at an all-time high.
As a tech and digital recruiting firm, our team continues to have difficult conversations with clients around compensation. Compensation has always been top of mind for companies, but today, companies are feeling the pressure from escalating costs around the supply chain, shipping costs (and now gas prices will make those even more expensive), and recouping COVID losses. Now seems the worst time to be in a compensation battle with the competition.
But it’s not all doom and gloom. Let’s go through some of the key issues we’re seeing across the board and creative ways companies can attract and retain top talent.
Why Compensation Rates Have Spiked
There is plenty of speculation as to why compensation rates have increased so much in the past 18 months, and the truth is, there isn’t just one culprit. We posted a blog on the topic last summer and the same drivers apply:
- Accelerated hiring to refill jobs lost during COVID-19 shutdown
- Pent-up money during 2020 now looking for a place to go
- Digital transformation requires specialized skills, and there’s simply a lack of skilled workers
And as we said, we are seeing tech and digital talent salaries rising rapidly – 25% or more every year for the same skill set and role. That trend doesn’t seem to be slowing down, as more companies are looking to hire talent to help them build their direct-to-consumer business models, enable technology capabilities, and direct their digital transformation efforts.
But with so many companies heading in the same direction, albeit at different paces, the talent pool is evaporating. If companies want their choice of talent, they have to understand what attracts and retains talent in today’s marketplace.
What Do Candidates Care About Most?
The days are gone of impressing people with perks like bring your dog to work, breakfast tacos and unlimited happy hours. While many still want to work in a fun, collaborative work environment, many are now either hybrid or entirely remote, making those in-office teasers not as effective.
Today, candidates care most about their guaranteed compensation at the end of the year, making a base salary a primary factor in their decision. An attractive bonus structure comes in a close second. Workers want to know they’ll get paid and they’ll be rewarded for their hard work with bonuses. Long Term Incentives (LTI), stock options and equity are still relevant, but they currently take a back seat for candidates since the market is flexing with so many high base salaries.
Our recommendation is to get the base salary offers as high as possible. The optics on a higher base salary is much stronger in the market right now than a high upside backend offer with LTI or equity. For example, let’s say you are hiring a Senior Software Engineer and you have $210k for the all-in budget. If you present an offer to a candidate with a $200k base salary and a 5% bonus versus an offer with a $175k base offer with a 20% bonus, the candidate will most likely jump all over the higher base offer the majority of the time. You have to consider all strong candidates will be receiving multiple offers to compare yours against, so you have to make it as compelling as possible.
Flexible Workplaces Are Here to Stay
Along with compensation, candidates want flexibility. They have been working from home for two years now and have adapted to the new lifestyle. The thought of going to an office five days a week can be overwhelming and restrictive.
Our clients with an in-office requirement of five days per week are having a tough time hiring, specifically at the Individual Contributor level. Companies with a flex model (a blend of several days a week at home and a couple in the office) are having much more success hiring. In fact, a PwC’s Workforce Pulse Survey found that post-COVID, nearly half of Gen Z (45%) and millennial (47%) workers surveyed said they’d be willing to give up 10% of more of their future earnings for the option of working remotely.
Beware of Market Compensation Analysis
We frequently debate with clients about the value of their “market compensation data,” which they typically source from online salary sites such as:
While such sites can be a loose guide in a traditional job market, we aren’t in a traditional job market. Historically, compensation has increased faster than ever, making it impossible for these online tools to keep up. Typically they are eight or more months outdated, so in this market, they aren’t reliable sources.
The rules have changed dramatically, and benchmarks have to shift. The best way to obtain current market rates is to work with a firm like Zilker Partners that lives and breathes in that market in real-time.
If You Want to Compete, You Need to Get Creative
Unfortunately, in this market, not all companies have the luxury of paying top dollar for talent and simply don’t have the budget or capital to compete in the market. Here are some creative options to still successfully hire in this market:
While you likely have standard requirements and expectations for specific job positions, you may need to concede on some variable of the job you want to hire. It might be years of experience, degree requirement or specific technical experience where you need to have some wiggle room.
McKinsey recommends companies think outside of the box, considering people who “have work experience but don’t have degrees; supporting ‘gateway jobs,’ or stepping-stone positions that provide an income boost; and by challenging their organizations to embrace a more inclusive, skills-based approach to hiring and talent management.”
For example, let’s say you are trying to hire a Senior Full Stack Engineer with 7+ years of experience with Node.js, React and AWS expertise, but only have a $140k budget (and this profile is $170k plus budget). You could pivot the role to a Full Stack Engineer with 4+ years experience and concede on one of the technical requirements.
Remember that people want to grow in their jobs. Harvard Business Review recently reported that 82% of employees say they want to hone their current skills or acquire new ones at least once a year to maintain a competitive advantage.
PwC found that 33% of surveyed employees said they’d accept smaller pay increases if their employer provided opportunities for them to learn different skills. This is hardly a new development, but it’s worth noting. You can leverage this knowledge to your advantage, promoting the job as an opportunity for growth.
Assess Your Organization for Proper Job Alignment
We consistently talk with clients who think they need to hire and actually don’t because they have redundant roles or those that could be consolidated, or have positions that could be eliminated simply because they don’t add real value. It may or may not be that the people in these roles are performing at their highest potential. Oftentimes, it’s simply company growth that’s gone unchecked, resulting in higher-than-needed resource costs.
Resource management is essential. You must understand demand and capacity to know if and when to hire. Going a step further, to ensure every job position is valuable and each person is reaching their full potential in their role, analyze your organization, projects and roadmap carefully to make sure the organization and resources are fully optimized. This might require some tough decisions, but when you have a limited budget to work with you need to ensure every position is aligned to the corporate mission.
Look at the Bigger Picture First
It’s easy to get into the mindset that filling every position will help your organization reach its goals faster, but taking a shotgun approach can end up costing you. Instead, be thoughtful about each hire, recognizing that a phased approach gives you room to adjust in real-time versus trying to guess what resources you’ll need far in advance and hiring them upfront.
When budgets are limited, think about splitting a role or job function. For example, if you are trying to hire a Senior Product Manager and a Junior Product Manager but don’t have the budget to hire both, focus on finding the right Senior Product Manager first. Once hired, work with them to analyze the gap (if there is one) and get creative on the Junior hire. You may be able to hire an entry-level business analyst and groom them into a Product Manager. Again, the potential for career advancement is typically enticing for candidates.
One of the best ways to stay competitive without exceeding budgets is to consider hiring contractors through a firm like Zilker Partners. Gartner found 32% of organizations are replacing full-time employees with contingent workers as a cost-saving measure. This contractor approach also allows for greater workforce management flexibility. When budgets allow, you can hire these now-seasoned contractors with zero recruiting efforts and minimal onboarding since they’re already there.
On the worker side, Forbes reports that there are 33% more contractors post-COVID as pre-pandemic times. Perhaps it’s the flexibility or maybe they’re enjoying broader opportunities, but it’s clear both companies and workers are open to contracting. This is not only a great option if you are trying to make the most of your budget, but it can be ideal if you are looking to complete a specific project or initiative. A temporary project or skills may not demand a full-time hire.
The State of Digital Compensation Is Different in 2022 but Bright
It can be challenging to navigate this post-COVID work environment and all of the changing forces. Many companies lack HR resources or have the proper bandwidth to keep up to date with compensation trends, candidate demands and what it takes to win talent.
Consider partnering with a recruiting firm like Zilker Partners to provide expert advice on how to craft compensation and benefits packages that will attract the best talent and retain those who are most likely looking for a better deal. This can be a massive time and money saver if you are hiring for harder-to-fill positions in tech and digital roles.
We may be living in an employee-driven market, but companies still have something workers want. It’s just a matter of defining and marketing it for your own organization so you draw in the right people before your competition does. By understanding the drivers and approaching compensation creatively, you can still go head-to-head with the best of them.