The talent crisis: Why base pay adjustments alone aren’t sufficient
As you might have seen, the UK is currently in the midst of a talent retention nightmare for HR professionals and business leaders. Talent acquisition is a priority for many businesses looking to address potential talent shortages, while others are having to enact a talent retention strategy in order to prevent their staff from looking elsewhere.
As a result, many are wondering how they can attract better talent while also retaining what they currently have, which is becoming increasingly difficult in a more competitive environment. There is a huge push for digital skills, which employees are becoming more aware of, putting further strain on already struggling talent acquisition teams and HR professionals.
In this article, we’ll look at the current talent crisis in further detail, paying close attention to how a talent retention strategy could prove beneficial, and why a simple base pay adjustment may not be enough to stop top talent from looking elsewhere (as well as why further pay rises may not be advisable for businesses either).
The talent crisis: Why simply upping salaries isn’t the answer
While it may seem that offering higher salaries may be the most obvious way to attract and retain top talent, which is what many businesses are doing, this may not be the best course of action. It’s important that HR and business leaders look at the bigger picture. Increasing salaries beyond simple base pay adjustments may not be sustainable, especially in this current economic climate.
Setting in place widescale base pay adjustments could have a negative impact on employee retention rates in many businesses, which is why strategies for retention should be carefully considered before being rolled out. If one person in a particular role receives a significant pay rise in order to prevent them from looking elsewhere, this could have a knock-on effect and result in their colleagues also seeking a higher rate of pay.
On a grander scale, widespread base pay adjustments may not be a sustainable practice for businesses wanting to futureproof their operations, especially with many other costs rising to equally high levels. While this is an unsustainable course of action, leadership should also consider the fact that some roles have glass ceilings. A salary for a specific role can only increase so much until it becomes untenable and impacts other levels of businesses, setting in action an unsustainable chain reaction.
Rethinking total rewards: Beyond the short-term cash incentive
Employers should instead look to improve the total package, looking beyond a simple base pay adjustment as the answer to all their worries. A modern business should look to enact a talent retention strategy that looks at multiple different avenues of compensation and remuneration, such as healthcare benefits or additional annual leave. While these still impact budgets, they’re often more manageable than widespread pay rises.
We should look at what the modern worker wants most, casting aside a base pay adjustment for the time being. Think about what changes, however minor they may seem, would have a positive impact on their lives and decrease the likelihood of talent seeking to exit the business. This ‘big picture’ thinking should be a core aspect of any talent retention strategy, as well as any talent acquisition activity.
Strategies for sustainable rewards: Insights from an expert
We asked Sally Elcome, Head of Reward Services at Moore Kingston Smith’s People Advisory, about her sustainable alternatives. The options available to a business will depend largely on a few factors; the size of the business, its maturity and culture and the budget available.
If you find yourself asking “What is base pay?” and “Why is it important?”, think about what could trigger an employee to think this way. While they may appreciate a base pay adjustment, there are other ways to increase satisfaction and wellbeing, such as providing access to cheaper (or even free) childcare, or providing access to private mental and physical health support. These are all different strategies of retention that should feed into a grander scheme aimed at keeping your talent happy and settled.
The power of flexible bonuses and commissions
These can be relatively easy and quick to implement and an excellent cash alternative to a salary increase. Bonuses can be target-focused or based on the business’s overall profitability and are a good way to drive productivity and work as an incentive to achieve objectives or meet relevant targets. This could be a more sustainable alternative to a base pay adjustment that incentivises your people to work harder, knowing that they’ll share in your success.
With the average salary increase for 2023 in the UK being around 7-8%, according to Startups, there could be ways for you to reach similar or better levels of total remuneration without having to commit to high base-level increases. Bonuses also have the added benefit of feeling like a pat on the back, even if they’ve been fully deserved and are somewhat expected – they’re great for boosting morale!
Future-focused: Creating lasting incentive plans
Incentive plans can work well as an engagement tool but are also great as part of a talent retention strategy for employees you would like to retain for as long as possible. These plans tend to run for three to five years, but the variables can differ depending on the needs of the business.
Typically, these types of plans are based on profitability or the financial targets of the business. If the business has a particularly strong period, this success is more evenly spread across the workforce, which provides an added reason for those involved to push for the best possible performance. With the average salary increase for 2023 in the UK being as high as it is, this could be an option worth considering.
Innovative solutions: The magic of phantom shares
A Phantom Share scheme is a cash bonus arrangement that allows both parties to achieve some of the benefits of employee share ownership without eroding equity. This scheme could incentivise employees to help the business increase their share price in return for a cash bonus instead of actual shares.
This works similarly to a performance-dependant bonus, but will often be more closely linked to business goals as opposed to personal targets being achieved. These arrangements can be as flexible as you need them to be, so you’ll have greater freedom regarding the exact terms and conditions.
More than money: The role of employee benefits and wellbeing
An employee benefits package can be a relatively low-cost and easy option to implement. These schemes have the potential to be more engaging in the longer term than a simple base pay adjustment, while they can also make the lives of your talent better, increasing morale.
Alternative benefits have become increasingly common with innovation and a ‘thinking outside the box’ approach paving the way to creating an engaged and motivated workforce. As we mentioned earlier, childcare is one benefit that appears to be more common nowadays, while the tried and tested cycle-to-work scheme has been shown to be effective, even if it isn’t the most exciting option.
A robust and well-thought-out well-being strategy is becoming increasingly important to prospective candidates. While a base pay adjustment might be something that would get the workforce excited, this can set a dangerous precedent and can be hard to wrestle control of once the wheels are in motion. In contrast, well-being benefits can be implemented over a longer period and tested to gauge their effectiveness.
Understanding what your employees truly value
It’s wise to often ask yourself “Why is employee retention important?” and take time to think of the key reasons why. This will help understand why it’s essential for you to keep morale and satisfaction high, without needing to commit to a company-wide base pay adjustment. To understand this better, it’s often a simple case of asking your people what they want. This can be addressed through an employee engagement or pulse survey or by asking questions during an informal process.
You may also find that you are offering employee benefits that people aren’t even aware of or wouldn’t necessarily identify as benefits. In a survey conducted by Total Jobs, 41% of participants indicated that they would willingly bypass a pay rise to receive alternative benefits. A base pay assessment might be desirable, but if they can save money elsewhere, and they don’t have to deal with the admin involved, this could be just as (if not more) appealing.
Even if you have been offering benefits for some time, it’s important to keep your package current and in line with market expectations. The benefits package employees are looking for has changed considerably within the last year alone. For example, hybrid-working, more awareness around health and wellbeing, and better recognition schemes, so it’s worth keeping an eye on and reviewing your employee benefits at regular intervals.
Navigating the reward landscape with expertise
Moore Kingston Smith’s People Advisory reward team encompasses over 25 years of experience in reward management. We can work alongside your existing HR and leadership teams and share our expertise and experience in developing creative and sustainable reward solutions to motivate and incentivise employees, driving business performance through a fit-for-purpose reimagining of a total reward package for your business.
Additionally, our support and guidance could include coaching and teach-ins around benefit packages, benchmarking salaries for UK talent, communication, and templates to use as part of an annual salary or bonus review. We can also work with you to ensure you have the right recognition mechanisms in place to continue to be an employer of choice, making it easier for you to attract and retain the desired level of talent.
How Moore Kingston Smith can help
If you often ask “Why is employee retention important?” and would like to know more about how we can help your business, or you would like further information and advice on the other strategic HR services we offer, please get in touch with us.
Moore Kingston Smith can help you navigate the often murky waters of setting in place a talent retention strategy that looks beyond a simple base pay adjustment and instead looks at the bigger picture. Sustainable growth is key, and by setting in place the correct processes, this can often be achieved.