Beyond Healthcare Costs, Compensation Issue Looms

An issue long off executives’ radar screens could reappear quickly. Now’s the time to position your company to retain its talent.


By Jon Binder


After a prolonged period of stagnant growth, wages are beginning to rise again in the labor market. Add in the never-ending rise in employer provided healthcare insurance premiums and ongoing uncertainty regarding the future of the Affordable Care Act, and the challenge grows even larger for companies to compete for the talent to drive business success.

The Bureau of Labor Statistics recently reported that the average hourly wage rose $0.10 in December 2016 and 2.9 percent year-over-year, the largest increase since 2009. In addition, OMNI Human Resource Management has observed that overall pay in the labor market has been growing 2-3% percent annually, depending on the type of job or function performed. Even more, wages appear to be rising as unemployment falls and many labor markets or geographic regions approach full employment. However, wage growth still appears to lag the overall economic recovery, and forecasters still project slow wage growth for the foreseeable future.

Slow Recovery. But even with average hourly earnings rising from 1.7 percent in 2014 to 2.9 percent at the end of 2016, critics argue that wages are still below par. With an inflation goal of 2 percent and productivity growth of 1.5 percent, experts suggest that average wages should be rising by 3.5 percent annually. Economists also say that inflation-adjusted wage growth is still not where we saw it in the 1990s and early 2000s, and we have years of slow wage growth now to make up for. Experts also say that automation and globalization are key factors that have held wage growth down longer than in previous recessionary cycles.

Strong Growth Predicted. However, the sea of change may be upon us. Experts are predicting that average wages will continue to increase at a faster rate. They believe that the labor market will continue to tighten and overall inflation will remain relatively modest. Experts also believe that wages are a lagging indicator and that they have not fully reacted to the 2016 labor market. As such, workers in the highest demand fields-—engineering, technology, healthcare—will benefit the most from increased wages at a faster rate than others.

Employers Must Adapt. So, what can we conclude from these trends and indications? First, rising wages and full employment will make it harder for employers to retain and attract strong talent, increasing pressure on their bottom line. This may be even more the case for certain in-demand skills/sectors like engineering, technology and healthcare.

Second, pressure on annual merit or general pay increases is mounting, again bringing increased pressure on the bottom line.

Third, Affordable Care Act uncertainties in this tightening labor market place a greater burden on companies to be more creative with respect to compensation, benefits, and all other rewards. Creativity in managing the mix of total rewards, along with other non-traditional ele-ments of the employment offer, will be necessary to chart a financially viable course forward.

Therefore, employers must begin to adapt. Accordingly, we are encouraging clients to consider raising compensation for consistent high performers and critical skilled employees to retain this valuable talent.

With budget season upon us, employers should embrace tactics to attract and retain stong talent and ensure a high ROI on their employee-compensation investment.

We are also encouraging clients to consider incentive compensation payments in lieu of base-pay increases. This avoids the compounding growth
of base-pay increases while still pro-viding valuable reward opportunity for all employees and top performers, particularly if the incentive compen-sation payments are tied directly to employee performance—higher risk, higher potential reward. This approach works particularly well in environments that embrace high performance and clear employee goals.

And employers should pay careful attention to non-compensation oppor-tunities to retain and motivate their key talent. These opportunities include:

ν Career development and opportun-
ities for employees to develop new skills or work on special projects.

ν Flex-time or remote work options.

ν Greater emphasis on total rewards
—compensation, benefits, recognition—and adjusting the mix of these elements to address overall employee needs—medical benefits, retirement benefits, etc.

ν Opportunities for philanthropic and community service, which build teamwork and enhance the company’s overall image in the community.

Budget season is almost upon us. The time is now for employers to weigh these opportunities and plan and budget for high-leverage tactics that will attract and retain strong talent and deliver high return on their employee-compensation investment.

About the author

Jon Binder is a senior consultant and compensation practice leader at OMNI Human Resource Management

in, Overland Park, Kan.

P | 913.653.8064 

E | jbinder@omnihrm.com