It’s no secret that there’s currently a labor crunch in the United States. Pressure to increase compensation is ramping up, particularly in many parts of the tech industry. We’re seeing more companies increase compensation across the board or in certain sectors in order to remain competitive.
Falling behind in compensation in today’s market can mean disaster: missed hiring targets and regrettable attrition. To avoid these issues, many companies are considering proactive raises for some or all of their teams in order to match or exceed market compensation. If you’re feeling pressure on your compensation bands, it might be time to take quick action. Here are a few points to keep in mind on market adjustment raises and how to run them:
Know the Market
As the hiring market heats up, compensation benchmarks can move fast. Markets that might have remained static for years can now shift in months or even weeks.
One of the most effective way to get up-to-date market information is by tracking competing offers as part of your hiring process, and the compensation levels at which you’re successfully closing candidates. By tracking what you and competing companies are paying you can build a picture of the current state of the market (this type of analysis is automatically included if you use our offers product to close more candidates).
This empirical data also provides a more accurate view of the market for candidates that your company wants to hire. You don’t need to worry about getting an accurate job description match from a benchmarking company. Benchmarks can also be a lagging indicator as it takes time for firms to collect data, by which point the market may have shifted significantly.
Move Fast (If You Must)
The ideal time to make a market adjustment is during one of your scheduled promotion and merit cycle periods – typically run once or twice a year. By making market adjustments at predetermined times you reduce the odds of your team petitioning for off-cycle adjustments in the future. This also simplifies operations for your payroll department.
But in some cases, the market has shifted so quickly that it’s vital to adjust compensation to keep up. In these cases it’s best not to delay and risk attrition, and an off-cycle market adjustment is often worthwhile. You’ll also earn trust by showing you’ll do right by them, even if it means breaking process.
Avoid One-Off Adjustments
Be careful of one-off raises to match market, especially counter offers for team members who are threatening to resign. If you try to increase comp for employees who quit, you risk setting a bad precedent – “get a competing offer and you can get a raise” – particularly if news gets out to the rest of the team.
Proactive market adjustments help you avoid scenarios in which your team learns that threatening to quit leads to rewards. If you get caught in a bind and need to increase compensation for an individual, you should generally approach the situation as you would for a new hire: analyze where their new compensation will fall relative to bands and their peers, and make sure that you’re willing to accept any salary compression or inversion issues that this might cause.
Ensure that You’re Being Equitable
And finally, make sure that you’re being fair. Market adjustments don’t need to be the same for everyone on the team. However, you should make sure that you have a good reason for places where you’re making uneven adjustments, and that discrepancies are due to permissible reasons such as variances in job performance.