How to Adjust Pay Practices in Response to a Changing Market & Economy

Economic conditions and the job market are constantly changing. These changes affect how you’ll recruit, retrain, and pay your employees. Are you offering competitive compensation? If you’re not paying enough, you could lose valuable employees. If you’re paying too much, you’re wasting company resources.

When changes happen, you’ll need to adjust your pay practices accordingly. Unfortunately, adjusting compensation isn’t a quick or easy job. It takes in-depth research, analyzing, and updating. What’s the best way to go about this?

Understanding Market Value and Pay Practices

The first step in adjusting compensation is to understand the relationship between market value and your pay practices. Access up-to-date information about salaries, benefits, and bonuses in your industry. You want to note their job descriptions so you can align what your employees actually do in their roles.

Employment runs on supply and demand. Supply in the job market is the workers with skills or experience needed in the workplace. Demand comes from companies advertising job vacancies and hiring for certain positions. The availability of special skills and how desirable they are to your company determines their worth in salary and benefits.

We’re currently experiencing labor shortages due to employees demanding more for their time. There’s also a skills shortage due to rapidly advancing technology creating new roles. This means companies are fighting for limited candidates and having to offer more just to attract applicants. To be competitive in your industry, employers must understand market value and adjust pay accordingly.

Adjusting Compensation to Reflect Changes in the Market

The economy in the US has been uncertain for years. Supply chains are experiencing ongoing disruptions, interest rates are rising, and the heated political climate of important players in the market is impacting supply chains.

It’s important to adjust pay practices in response to changing economic conditions. By monitoring the market, you can alter compensation to better reflect the shifting environment and the needs of employees.

“There’s been a lot of competition for talent. Looking into the numbers, the different government reports…what we see is that despite the slowdown that’s coming in the economy, talent markets are still just incredibly tight. Whatever sort of small changes or declines in the number of jobs open, we’re still at historically tight levels. That’s still driving a lot of pressure on compensation — from candidates and from employees, too.” says Dave Carhart, VP of Lattice Advisory Services.

If you can’t offer salary increases, you could add performance-based bonuses or commissions. The opportunity for paid leave or extra training could also be enticing. You continue to reward your employees and remain competitive in the market, but you aren’t adjusting compensation you may not be able to afford.

Updating Job Descriptions to Accurately Portray Job Requirements

You’ll then need to review job descriptions and ensure they accurately reflect the scope of the job. This is a vital step in adjusting compensation in response to a changing market. Take some time to evaluate how the roles within your organization have changed over the past several years, and if needed, make adjustments. Be sure that each job description accurately reflects the overall work experience that your team requires from each employee.

In addition, consider any new skills or qualifications that are needed in order to successfully complete a role. For example, if there has been a shift in technology, you may need workers that possess more advanced technological competencies than originally required when the position was first created. Making sure you are offering higher wages for roles with greater requirements helps make sure your team members stay motivated and engaged while keeping pace with current market trends.

Leveraging Technology to Streamline Your Compensation Practices

Technology can be a big help when you’re adjusting compensation practices in response to a changing market. Collecting and analyzing data takes a great deal of time and patience. Workforce market data needs to be sorted into job type, industry, region, and experience level. It also requires regular reviewing.

Software solutions can make this process smoother. Salary.com’s CompAnalyst will gather a broad pool of market data and organize your employee data to help create job and pay grades. This information can be used to write job descriptions, adjust job requirements based on industry trends, and offer compensation guidance. This will streamline the whole process and make revisions easier.

Compensation should be fair and transparent, but you also want the process to be efficient. The major advantage of technology is that it can pool all the relevant data together and ensure that you don’t miss anything. You could make compensation adjustments to a certain role and not realize that you’ve created a pay disparity in another.

Take Home Message

The market and economy are constantly shifting. As a result, the workforce and compensation practices must change accordingly. Begin with understanding how market value and pay practices are related. Keep up to date with trends and shifts and adjust your compensation packages. Update job descriptions and ensure they’re accurately portraying the job requirements.

You can’t risk neglecting adjusting compensation in your organization. If your employees find better benefits for the same work, don’t expect them to stick around. All of this can be hard work, but it’s imperative to remain competitive in your industry. Software solutions can help gather relevant data and organize the positions in your organization by pay grades. Be prepared to review your pay practices regularly.