Are You Adjusting Your Next Review Cycle in Light of the Great Resignation?

The Great Resignation is well underway. Two-thirds of workers are looking for new jobs, and 88 percent of executives report higher employee turnover than usual. 

Each voluntary resignation costs employers an estimated 33 percent of the employee’s base pay, including both direct and indirect costs that affect operating expenses and productivity. This is an expensive problem that requires a multi-faceted solution. 

Better compensation and benefits is cited as the top motive for switching jobs, with 36 percent of job seekers saying they would consider leaving their jobs for this reason. This is followed by work-life balance (25 percent), recognition (16 percent), culture (8 percent), values (5 percent), and team relationships (5 percent).

Making some adjustments to your next review cycle may help combat a high employee turnover rate, though it’s certainly not the only lever you can pull.

Reasons to consider adjusting your review cycle

So much has changed over the past couple of years, and your review cycle may need to adapt in response. Some factors to keep in mind include:

• Rising wages. Wages are rising quickly across many industries and functions right now. Compensation survey data tends to lag, so it will be more important than ever to multi-source your market data prior to your next cycle. In addition to using survey companies, get real-time internal feedback around compensation from your recruiting team and managers. For example, find out whether compensation is a factor in candidate offer rejections and employee turnover. You may also want to consider a second mid-year salary band refresh and compensation cycle if you don’t already run one. 
• Inflation. The annual inflation rate in the United States surged to 6.2 percent in October of 2021, the highest since November 1990. Social Security checks will be increasing by 5.9 percent, the highest increase in decades. But companies are only projecting 3 percent salary increases for executives, management and professional employees, and support staff in 2022. If left unaddressed, your team members may feel the effects of lower buying power and begin to look for better paying opportunities elsewhere. 
• Salary compression. Pay is increasing nearly twice as fast for lower-wage workers than it is for higher-wage workers, leading to less distinctive pay ranges across job levels. Organizations are also finding that they need to increase starting salaries for new team members, which may meet or exceed what existing team members in similar roles are earning. Watch out for salary compression by looking for clusters in compa ratio distribution and reviewing salary distribution analyses during your regular review cycles.
• Remote work. Remote work is here to stay. If your company is embracing it for the first time, you may need to adapt your compensation cycle to account for your remote compensation strategy. For example, you may need to develop new salary bands for team members who have relocated, or you may need to consider an alternate way to reward a team member who has been red-circled post-relocation. You may also find that companies offering above-market rates to remote team members in your geographic area are increasing the cost of market overall. 
• Pay gaps. Social injustices have been in the spotlight throughout the past couple of years, and pay inequities are finally getting more attention. If you haven’t looked at internal pay equity in the past, there’s no better time than the present to build fair pay adjustments into your raise cycle. Forty-three percent of workers say they would leave their current position if they discovered they were paid less than a colleague of a different race or gender doing the same job. Addressing pay gaps is not only the right thing to do, it will help you minimize resignations.

Take these factors into consideration as you continue to prepare for your next compensation cycle. Sync with your Finance team to discuss the implications of the Great Resignation on your organization, and present the budget you require to implement your compensation strategy.

What if raises aren't in the budget right now?

The budget you request for your next compensation cycle and the budget your organization is able to offer may not align. If you’re not able to offer each team member the raise you feel they deserve, there may be other ways to reward and retain them:

• Pay transparency. A little pay transparency can go a long way. If deserved raises simply aren’t in the budget right now, let your team members know. Give them what you can for now, and let them know if you plan to offer another increase mid-year. Tell them you hope they will stick around, but understand if they don’t. 
• Equity grants. If your company uses stock grants as part of your compensation package, consider rewarding employees with additional stock options. While a traditional refresher might include 25 to 50 percent of what you would offer an employee for their position today, you can also consider smaller, more widespread grants when you don’t have the budget for raises.
• Spot bonus. Rather than a salary increase, you can use your budget to reward team members with a one-time spot bonus. This shows appreciation while allowing you to adjust your budget as needed in the future.
• Flexible work. Better work-life balance is the second most common reason team members are considering a job change this year, and there are many no-cost ways you can provide that. Consider offering remote work, a 4-day workweek, flex hours, or unlimited paid time off to your team members.
• Development. Train your team members so they can learn the skills and earn the promotions that will equate to higher compensation over time. When positions in higher job levels with higher corresponding salary bands open up, consider internal candidates first. This works best if you develop, mentor, and sponsor team members to enable internal mobility.
• Recognition. Employee recognition is a powerful motivator that leads to higher engagement and retention—and it doesn’t have to cost anything. Create a culture of feedback, where each team member is encouraged and enabled to recognize their peers, direct reports, and leaders for their contributions.

Final thoughts on adjusting your next review cycle

While compensation is a top reason for employee turnover, it isn’t the top factor when it comes to retention. Work-life balance and recognition are both considered more important than compensation for retaining top talent. Pay still needs to be competitive, but it’s not the only factor being considered.

Use your next review cycle to address the current compensation trends if you’re able, but also make sure to offer recognition and share next steps in each team members’ career ladder. Ask your team members for feedback, particularly around work-life balance, and make necessary changes to build a happier workforce. And if it makes sense for your team, flexible work options can complement your Total Compensation package to minimize the effects of the Great Resignation on your organization.