Competing for talent on compensation alone is like trying to attract more customers based solely on price and discounts to drive traffic. There is a limit to how far you can continue to go without it negatively impacting your business profitability. But is company culture enough to woo and satisfy employees? Is it time for compensation as the ultimate bargaining chip to take a permanent back seat?
The war for talent has been intense for many organizations this year. Yet, take a wider look and you’ll see this has been raging for the past two years. Expand your view further, and you’ll recognize it has always been a battle for organizations to recruit and retain the best talent. The difference has been where employers and employees have placed their attention.
Compensation has certainly been a top talking point recently. However, factors like work-life balance, career progression, and flexibility have greatly impacted hiring and retention efforts. Notice that what employees have been placing a higher value and priority on all relate to your company culture.
Keep reading as we take a closer look at what many organizations debate over when competing for talent: culture or compensation. Your goal is to compete for talent in a way that can be equally attractive to job candidates and better for your employees and business long-term.
The Risks of Competing for Talent on Compensation Alone
In a highly competitive job market, many employers will raise salaries to attract talent. The risks of competing for talent based on compensation begin to creep in though when employers start paying new hires significantly more than existing employees. Gaps in the pay scale between new hires and more experienced employees are expected. However, in a competitive job market where compensation becomes the driving influence and motivation, conditions are ripe for “wage compression.”
Wage compression, also sometimes referred to as pay or salary compression, occurs when pay for new hires approaches the pay of longtime staff or senior colleagues. If left unaddressed, wage compression could significantly impact employee morale and retention.
But the war for talent often goes beyond competitive compensation. Companies are increasingly offering other benefits to new employees, including large signing bonuses and college tuition reimbursements, alongside higher starting salaries. This makes competing for talent difficult since this slippery slope can quickly become very expensive for companies.
According to ADP, this is especially true as individuals who change jobs glean an average salary increase of about 5.3%. This average is still well below the average threshold that Gallup identified in the State of the Global Workplace: 2022 Report as the point where a competing offer is seriously considered by an employee engaged with their work. Gallup found that an engaged employee is unlikely to even look at a new job unless the pay differential is more than 20%.
Competing for talent on compensation alone can quickly add financial stress to your business. And for most organizations, there is a limit to how long this game can be played. You also can’t ignore the risk to your current employees and company culture.
When the effects of the “Great Resignation” were beginning to hit organizations, business leaders scrambled to understand why. While compensation was certainly a factor, deeper issues like purpose, career progression, company and personal values, and work/life balance emerged. Employees wanted their careers to have meaning and fit within the rest of their lives. More recently, employees are “quietly quitting” and declaring they are only willing to “work their wage”.
All of these changes in the labor market are multi-faceted. Yet, they also all involve aspects of employee engagement. When organizations are competing for talent on compensation alone, employees also focus only on compensation, not on the larger benefits and opportunities you are and can offer them. And sadly, when challenges, frustrations, and other opportunities arise (and they will) employees will also view them in light of their own salaries. Can you be certain that your employees will believe whatever they are facing or tasked with is worth what they are being paid?
How to Compete for Top Talent with Your Company Culture
Money won’t fix all of today’s complex talent problems, and according to Ceridian’s 2022 Pulse of Talent, “a good salary is not a silver bullet for retention.”
The success of breaking out of the cycle of matching compensation while competing for talent will depend heavily on your company culture, which is often the beating heart of your workforce. By shifting your recruiting strategy to lead with culture and your unique employee value proposition, you can not only compete for but attract talent that is more likely to join your company for the right reasons and stay for the long haul — not just a salary bump.
Here are 4 ways to leverage your company culture as an advantage when recruiting and competing for talent:
1. Share an accurate reflection of your company culture.
The way you describe your company culture is incredibly important when competing for talent. The language used will impact a candidate’s perception of your company before they even set foot in the door. It is vital to utilize language that is transparent, accurate, and in line with what your ideal candidate would want to see. Avoid using cliches and overused phrases such as “work hard, play hard” or “we’re all a big family” as they have all but completely lost their meaning. And most candidates can see right through them. Visibility into your company culture must be genuine to attract a perfect-fit hire.
2. Highlight the unique benefits that retain talent.
What unique benefits do you offer employees? Your current employee base is a potentially untapped resource when it comes to selling your company to prospective candidates. By understanding what has helped to retain your long-term employees, you can begin putting together an employee value proposition (EVP) that would help to attract and retain new talent. An EVP isn’t a rewording of your mission or vision statements, it should be a reflection of the values your employees gain from working at your company versus a competitor.
3. Create a desirable place to work.
Admittedly this may be hard to precisely define since it likely varies from one employee to another. The good news is that exact details may not be needed here. Plus, you will know when you get this right because your employees will show you through their level of engagement and productivity, along with overall morale. Start by focusing on the baseline items that all employees want: open and clear communication, feedback that is encouraged and regularly solicited, and values that are practiced and followed. Now, expand that focus by supporting healthy work-life balance for your employees, offering flexible hours, and where possible providing hybrid or remote work options. By the way, foosball tables and meditation zones may be fun and nice but they don’t increase your value as a desirable place to work when competing for talent.
4. Promote career development and opportunities.
Does your company encourage and offer support for professional development, and more specifically career advancement? Candidates are attracted to organizations that create opportunities to learn and expand their skills beyond what may be standard or required for their industry. Take advantage of opportunities that allow for education and professional growth. Today’s job-seekers want to be able to envision their future with your company and have a sense of purpose in their careers. Help them see what is possible with you.
Culture or Compensation? Why the Final Answer May Be Both
While competing for talent by highlighting cultural factors will make a long-term impact, it cannot be ignored that salary will always play a role in a candidate’s decision. A report from McKinsey found that “Focusing on only compensation or only on culture won’t stem the tide of attrition. Business leaders must pay constant attention to both.”
Companies looking to be successful in the current war for talent will need to offer compensation packages in line with current market ranges and find ways to promote the uniqueness of their company culture. There is no one, right way to go about this; it will depend on your company, industry, or niche you operate in, and the values and goals of your candidate pool. However, your diligence to get this right will bolster your efforts in attracting and retaining talent.
Compensation and other important culture-related factors like work-life balance, career progression, and flexibility should all have a place in your recruitment strategy. Anything that you can do to set your company apart from the crowd is critical when competing for talent. Companies that provide current and prospective talent with opportunities that include a strong culture, alignment with an employee’s sense of purpose, and competitive compensation will have an edge over organizations competing for talent with a singular offering. Further, a joint focus on culture and compensation will improve employee retention and engagement.
For more ways to stay competitive in the war for talent, access our Complete Guide to a Thriving Company Culture.
