To what extent has the pandemic rewritten the old rules of hiring? “Utterly and completely” might be the best answer insofar as salary is concerned. Take the following figures — average pre-pandemic compensation levels compared to now for accounting and finance roles that run the gamut from senior-level leaders to individual contributors.
Within the C-suite, of course, it sometimes seems like the upward pressure on compensation is itself a kind of ineluctable force, obeying a logic of its own, regardless of external circumstances.
When the global pandemic hit in 2020, for example, there were well-publicized instances of CEOs agreeing to substantial pay cuts in order to shore up the bottom lines of their businesses. Meanwhile, other leaders, like Chris Nassetta of Hilton Worldwide Holdings, went so far as to forego base salaries in order to free up much-needed cash for the business.
None of it made a difference.
In 2020, despite massive economic upheaval, median pay for CEOs rose by five percent compared to the year previous — even the seemingly magnanimous Nassetta's net compensation more than doubled during that period. (One interesting note here: In the world of startups, while female CEOs agreed to pay cuts of 30 percent on average during the pandemic, the majority of male CEOs helped themselves to a raise.) In any case, come 2021, this momentum didn’t just continue, but even picked up speed, with average compensation for CEOs growing by 19 percent year over year.
Now, looking both forward and backward, what do these trends mean for executive hiring and compensation strategies in 2022? And more concretely, how can companies continue to stay competitive with salary offerings, signing bonuses and other forms of compensation without breaking the bank — or inadvertently driving other, perhaps unforeseen, negative outcomes?
At a moment when even Amazon has recently decided to more than double its base pay cap in order to remain competitive, questions like these are surely top of mind for many. Here, two senior leaders from Tatum — Dominic Levesque, CHRE, CRIA, President of Randstad Office Professionals and Tatum, and Tim Carlson, Senior Vice President of Tatum's National Professional Search Group — weigh in with five insights and answers from the latest data.
1. chuck your old benchmarks
Would it surprise you to learn that compensation levels for U.S. workers at large grew last year at the fastest pace in decades? It’s true. Yet that really isn't the whole story.
First, you have to factor into the equation astronomically rising inflation, which effectively renders those wage increases a lot more modest in context.
Second, there’s the high-level chronology to keep in mind: While millions of relatively low-paid workers lost their jobs or were furloughed with the onset of the pandemic, most of their relatively high-paid counterparts were able to make the switch to remote work and remain employed. Average wages climbed, at least in part, then, due to the changing composition of the workforce, as this report from the White House documents.
With that as background, where should employers look in order to effectively set compensation levels for C-suite executives and other organizational leaders?
"What I’m seeing is a lot of companies setting salary ranges based on numbers that frankly feel like relics from the distant past," Tim observed. "These companies aren't taking into account all of the new variables that are suddenly in play: lack of available talent, the impact of new hybrid opportunities and so on, all of which are impacting senior-level salary expectations."
Dominic concurred. "COVID-19 has had a huge collateral impact. Right now, if you look across North America, the increase in demand for talent is mostly driven by talent scarcity, not by, say, inflation or increasing GDP."
What's more, the issue of scarcity is being compounded by time-sensitive demands on the side of companies themselves, according to Dominic. You might call those demands "urgency." Or, as Dominic did, "the speed with which businesses simply must ramp back up."
Dominic continued, "It's a classic example of the dynamics of supply and demand, and if we know anything about those dynamics, it's that they always have an impact on prices, right?"
Of course, that doesn’t make setting the right price for a top-notch new C-suite hire any easier.
2. embrace the candidate-driven market
Another lingering obstacle to more effective compensation strategies, in Dominic’s view, is something tantamount to a kind of myopia on the part of employers.
"What a lot of companies feel, and what a lot of them fear, are essentially one and the same things right now, which is really dangerous,” Dominic said. “What I mean is that these companies are hoping that the challenges they're facing in sourcing or hiring talent — and the challenges of the hiring environment in general — are just temporary or cyclical. A lot of companies would like to bank on this being a short-term thing.”
But that’s unlikely, Dominic warned.
Here’s his point-blank rebuttal: "The reality is that the best talent is going to be more expensive, period. That isn't going to change. So, fundamentally, if you’re asking, ‘What is the right amount to pay for the right talent right now?’, you need to look at all of the data pointing to rapid growth. Also, realize that how agile employers are in the marketplace today is going to determine what happens tomorrow. And if you don't adapt, you die — it's that simple."
Any approach to talent strategy built on the ostrich-with-its-head-in-the-sand model isn’t going to cut it, in other words. Employers that are still waiting for a return to the earlier, employer-driven hiring market — and refuse to adapt because of it — will have to keep waiting. And in the interim, they’ll continue to struggle to achieve their talent acquisition targets.
As Dominic pointed out, “Many companies are wary of paying above-market rates in order to land valuable contributors because they’re worried that it could set a costly precedent in the near-term talent market. But if the current dynamics are here to stay, the only question is when they’re going to decide to set that precedent, not if.”
3. dial in on geographic nuances
In a world made somewhat flatter by remote and hybrid work arrangements, does geography still matter when it comes to compensation? It does — but probably not in the ways that you think. What’s more, if your organization is among the 40 percent of companies considering implementing location-based pay strategies, then a nuanced understanding of the latest geographic trends is going to be absolutely critical.
Look at the following high-range annual salaries for two in-demand roles, dialing in on the differences in pay based on location, for example:
- corporate treasurer in Fairfield, Connecticut versus Harrisburg, Pennsylvania: $219,301 ($361,270 versus $141,969)
- CFO in Atlanta, Georgia versus Des Moines, Iowa: $33,528 ($445,433 versus $411,905)
“It isn’t just the big markets anymore,” Tim said. “Tech salaries in Austin are almost identical to what you would expect to see in San Francisco. It’s a big part of the reason that, within our Professional Search practice at Tatum, we’re seeing clients who will say, ‘We’re happy to hire this candidate, provided they can come into the office once a month.’ Literally, once a month — that’s it. So they’re recognizing the high-level scarcity. And if this is the best person for the job, and if they can be face to face with the board or with the team once a month, a lot of employers are going to be happy with that.”
4. carefully think through the back-to-office conundrum
Geographically-adjacent is the question of return-to-office policies: if, how and when to reinstate them. There’s no simple solution, of course — which doesn’t change the fact that the question itself is a potential landmine. Indeed, it’s almost impossible to overstate how powerfully such policies can influence human capital outcomes.
And for companies that make the wrong call?
"It’s going to be the thing that catalyzes people who might have been on the fence to finally decide, you know, 'I need to explore other opportunities,'” Tim noted. “It’s going to drive people to that decision. And, in fact, we're already seeing that with clients. Even at companies that are only asking employees to come into the office one or two days each week, people are saying, 'I can't do it. Where am I going to find childcare just to cover one or two days each week?'"
Another key policy consideration: When does it make sense to pay a premium in order to bring a valuable new hire onto your organization? While that might sound like a fairly straightforward question, the decision to do so can have consequences that go way beyond the ones you intended. At some point, for example, you’re going to need to upwardly adjust compensation for anyone else on the team who holds a similar level of seniority.
Why? The answer is pretty simple in Dominic's view. "People aren't stupid," he said. "They know they can get a similar offer somewhere else, and the fact that you've just agreed to pay someone else that much is proof.”
Dominic added, "The cost of not having the right person is often significantly greater than whatever the additional cost would be for you to pay them what they’re asking."
5. uncouple salaries from inflation
Pegging salary increases to inflation should be seen as a non-starter at this point, according to Dominic and Tim. Yet it isn’t. But the reality remains that inflation simply isn’t a relevant benchmark for thinking about salary, especially when it comes to the executive suite, for several reasons.
The first is that inflation is rising at an outrageous rate right now. In fact, it currently stands at a 40-year high, meaning that the same items cost 7.5 percent more today on average than they did a year ago.
The second is that by pegging salaries to inflation, you aren’t going to be aligned with the current rates in your market. Look at the pre-pandemic-versus-now salary figures laid out in the intro, for example. Even the role with the smallest incremental change in compensation, controller, at plus-eight percent, still outpaces the current rate of year-over-year inflation.
Peg raises to the current rate of inflation, in other words, and you run the risk of making offers that badly miss the mark. Perhaps even by tens of thousands of dollars.
So while inflation may be one of the more popular, however unsophisticated, means by which companies benchmark salaries to ensure they’re "up to date,” this isn’t a particularly outcome-oriented strategy. It has several fatal flaws — complete blindness to market rates, most critically. And at this point, especially considering the significant geographic variations in salaries we touched on earlier, it should be more widely seen as obsolete.
For now, how effectively organizations can respond to these and other challenges around new salary expectations remains very much an open question. What is clear, though, is that it's going to be a key differentiator, something that influences bottom-line outcomes and ultimately plays a role in deciding which organizations thrive — and which struggle to pull ahead.
Yet perhaps the biggest risk of all? "Some companies will decide to sacrifice long-term productivity gains, or all of the benefits that come with making a great hire, in order to preserve or protect their short-term balance sheets," Dominic observed, "and that’s a big mistake. You also really don't want to go out into the market today and try to make great C-suite hires based on what your gut is telling you about salary. Trust me, it's not going to work."
So why not arm yourself with today's latest and most relevant compensation data for your company, instead, by downloading Randstad's 2022 Salary Guide today?
Better yet, why not connect with a knowledgeable expert in your market who can help steer your hiring processes from end to end and drive the outcomes that matter, while also respecting budgetary constraints? Get in touch with Tatum to get started.