Compensation consultant Somersan on wage compensation in the face of inflation

Inflation remains an issue that keeps CEOs up at night. When asked about specific impacts of inflation, 72% of CEOs reported rising wages in our most recent CEO Confidence Index survey. The same survey of small and midsize business leaders found that 76% of CEOs plan to increase headcount in the year ahead. Combine that data with an unemployment rate of 4.2%, and it is clear that everyone is hiring. To be competitive, 78% of CEOs report they have increased wages and 29% have increased hiring bonuses in response.

To provide perspectives for CEOs that are struggling with the one-two punch of rising wages and talent scarcity, we invited Vistage speaker Rena Somersan to share her key considerations for raising wages. With 25 years of experience in consulting and industry experience in strategic human resources, Rena shares insights on compensation and wages to Vistage groups and other organizations across the country.

Transcript

Rena Somersan: Yeah. Thanks, Joe. It is just … what the heck is going on in this compensation arena. I’ve been speaking with several groups, and there’s never been a time like the present where compensation is in the news almost every day. Your employees are opening their computers and hearing about inflation and then they’re hearing about wages. They’re hearing about these wage price spirals. They start to think. They’re hearing about sign-on bonuses. Everyone and his uncle has a sign-on bonus to deliver pizzas, flip burgers, everything. I was driving through Wisconsin, and I saw an ad that said, “Green Bay Packers tickets, just to come interview.” I mean, people are doing everything to attract qualified candidates.

There was a recent statistic in a different survey from your Vistage survey, but it said there’s 10 openings for every seven bodies. So to your point, your numbers show that as well. So many Vistage companies are going to be hiring. Well, we know for sure there is a lot going on in the sign-on bonus arena. You said it yourself; everybody’s giving those. I have some data that says 70% of organizations are doing a sign-on bonus, 40% are doing retention.

Now what’s the difference? A sign-on bonus is a great way to attract new hire. You’re able to say, “Look, I’m going to give you 500, 5,000.” I’ve heard $30,000 sign-on bonuses for nurses these days. Crazy. Never seen before.

But sign-on bonuses are quickly given, quickly spent and often quickly forgotten.

So I always ask my groups, “What about the people who’ve been there loyal to you?”

Joe Galvin: Rena, that was going to be my question. Signing bonuses being signing bonus, that’s a sign of the time. But this increase in wages. You know, “I’ve been here for three, four, five years, and I see you hired Rena for X percent more than me. What’s up with that?”

Rena Somersan: So you do have to think about your current employees. First of all, retention bonuses are very nice. I saw a program the other day that I thought was really creative. They said, “We’re going to give everyone on staff 20 hours.” Creative, because they said, whatever your hourly pay is, you get 20 hours. “But then you longstanding employees, if you’ve been here for 20 years, you get one hour for every year you’ve been here. So you get the 20 hours, then if you’ve been with us for 20 years, you get another 20 hours, 40 hours of pay.” So now you got 40 hours of pay and then they did something where they put on, “If our company does really well, we’ll increase that by 5%. If we do even better, we’ll increase it by 10%, even better, 15%.”

So ways that you can be creative and tie a thank you to your current employees in there — a nod to performance — these are some really great ways.

Now, overall annually, people expect a wage increase. They expect some sort of a salary increase. “When do I get my raise?” And what are raises these days used to be raises were approximately 3%. We’re hearing fours, fives.

Joe Galvin: Are you hearing any more that inflation is now at 6.8%.? And even though it may or may not abate next year, it’s like, “Oh great. You took my bonus from three to five, but it’s still losing 1.8.”

Rena Somersan: That’s the real wage question and …

Unfortunately, cost of the labor doesn’t exactly follow cost of living.

And the cost of living right now is raising faster than cost of labor is, so we’ve got a little bit of real wage loss. Your employees are starting to realize this because it’s being blasted all over the newspaper and news waves. So I do think there’s an issue there. My suggestion, I think you need to focus on perhaps using some creative methods like off-cycle increases. So if you can take a group and be like, “Look, you guys are really special. I need to just bump your pay right now.” And then maybe five, seven months later, I’m going to do another bump right now. Off cycle. Throw them off. If you’re typically a once a year, annual increase type of methodology, try these off-cycle increases. It can do wonders. You’re pulling it up. You’re making it effective today. And I think that’s really valuable.

I think another thing that an organization can do is making sure you’re on top of what the wage is for your frontline. Get some competitive market data. I was working with an organization, we pulled the data and then we had a newspaper come out on Sunday that said, “Here’s what we’re paying our starting numbers.” Our number and the published survey data, which is a little bit lagging indicator, was a bit behind. So we added that in, put 50% weight on that and said, “Well, this is the number we’re going to give.” So you have to be really nimble there. Prioritize that hourly pay.

I think another comment that I’ve been doing is make sure you’re not going with the old peanut butter approach.

Don’t spread across your whole budget to everybody because gosh, we got to be fair. Right now, think about your core competence at the organization, who are your core people and what are your core competencies, and put the money there. Then if you have leftover, do everything else.

There are some jobs right now, data analytics, warehousing, anything IT, engineering and science jobs, these types of jobs are up higher than even the regular market. So I think you need to make sure you’re competitive, you’re getting your data and you’re on top of that.

Joe Galvin: Do you see this as a transitory thing, a cyclical thing? Are we in this spiral, if you will, for the foreseeable planning future at least?

Rena Somersan: I’m an optimist. I want to hope they’re going to get it under control. I’m advising folks not to do knee-jerk reactions because the worst thing you can do in the compensation arena is take pay away from someone. They will never forget. They will never forgive.

Joe Galvin: What’s your recommendation for a CEO who has a top employee, maybe it’s a executive, it’s a manager it’s line employee, but a top employee who comes and says, “Hey Rena, I just got an offer for 20% more to go across the street. Help me.”

Rena Somersan: I think with executive comp, and many of our Vistage CEOs want to hear about this, executive comp right now, we’re having a big upswing in long-term incentives and in non-qualified deferred compensation arrangements.

Joe Galvin: So retention-based components.

Rena Somersan: Retention based components. Anything you can do to keep that butt in the seat, man. I mean, it’s crazy. Right. I think the conversation is something like, first of all, people pay most attention to the base salary. We all know that, because that’s the bird in the hand. All the rest is a nice promise.

However, I do think that what you need to think about, you have to think about the employee value proposition. What is the whole package? What do you do for base and how competitive is that? Maybe you have a slightly lower base and you say, “Yeah, you’re going over there for 20 percent more base, but did you ever look at what their annual incentive, what their long term incentive and what their non qual- offerings were? Because if you add all that up, my pie is bigger than what their pie is going to get you to. I might not give it all to you up front, but you know that you’re a performer. I know that you’re a performer. Stay with me.”

Joe Galvin: Let’s assume that all that is equal and it’s still 20% more. Do you match that? Do you let them go? And if you do match it, what is the message? In either case, what’s the message you send to everybody else who’s watching and listening very closely?

Rena Somersan: My typical stance has been I’m not a big fan of the counteroffer. If they’ve gone through the trouble to interview, to go through many times, which is — well, these days they basically, “Can you breathe? Yeah. You’re hired.” But typical interview processes take time, they take multiple interviews. And if somebody’s gone through all that and they come to you to say, I’m leaving, their foot is already out the door. So I typically said, it’s a lost cause. Maybe say, “Look, do you want me to offer you anything else? Or have you made your decision?”

Okay. And yet, that aside, Joe, I have been reading that the counteroffer has become much bigger these days because honestly, I don’t want you to leave. I can’t afford to have you leave right now. So I’m going to have to match and I’m going to have to go up. So what does that do though? It is a war.

Joe Galvin: It’s going to take longer and cost you more to get a less experienced person.

Rena Somersan: It is. It is. So, I don’t know. I don’t know what the answer to that. I typically said, “Don’t do it.” I don’t think you can afford not to right now though. What do you think, Joe?

Joe Galvin: Yeah, I know, it becomes one of those key CEO decisions that is connected to the culture. And most importantly, it’s not what you say to that person, but it’s what resonates through the organization, which leads to my last question. This phenomenon of the boomerang employee, we all think the grass is always greener on the other side, till you get there and you realize, “Eh, it’s got the same type of stuff growing in it. As a matter of fact, I want to come back. But, by the way, I got this raise increase, so I’ll come back provided …” and all this. Your concepts on how you deal with the boomerang employee.

Rena Somersan: I mean, I had been … I try not to do it. I’ve been of that mind, but I don’t think we have that luxury right now. To take someone back who knows everything that we do, who says, “Mea culpa, I made the wrong decision. Can you help me out here?” You might have to consider it.

It’s a tough choice because it sends the wrong message that you actually have to leave to get a pay raise here.

That’s the wrong message. But, that’s why I think the negotiation aspect is really important there. “You can come back, but I can’t have you be seen as having taken a step up and coming in with a brand new car every day to just poke it in everybody’s eyeballs.”

Joe Galvin: Right? Well, Rena, it’s clear this is an issue that CEOs are going to be dealing with. This aspect of wage and the wage spiral and how you deal with all these things, especially when hiring is dominating all the challenges and issues and opportunities CEOs face. What are your top recommendations for CEOs before we thank you for your time and let you go?

Rena Somersan: 

• Keep on top of what the market is doing. Get your data.
• Make sure you’re paying attention to the key parts of your business. Put the money there.
• Focus on retentive vehicles, think about retention bonuses, think about pay for performance and up your 10% … What was it? So many people are doing 10% more than they did last year in terms of their annual incentives. So do more for annual and long-term incentives.
• Do the best you can with some of these thorny issues like “the boomerang employee,” like “the counter offer” that you really don’t want to lose that employee. Just put it all on the table, weigh those scales carefully, because it’s a tough market out there.

Joe Galvin: Rena, thank you so much for your time and your expertise. We’ll come back to here in a couple months to see how things change. Inflation’s not going away soon, but hopefully it will as the supply chain fixes itself, government stimulus money runs out and the pent up demand we all experience passes. But one thing that’s not going to change is the demand for people and just like Econ 101 taught us, supply and demand. When supply is low and demand is high, prices have to rise. Rena, thank you so much. This is Joe Galvin, Vistage Chief Research Officer, for The CEO Pulse.

Interview edited and condensed for clarity. 

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