Compensation Struggles by Industry

Unsurprisingly, the job market has been changing dramatically and many organizations are facing new ...

Posted by Allegra Hill and Dr. Thomas Carnahan on October 17 2022

Unsurprisingly, the job market has been changing dramatically and many organizations are facing new challenges. Many have felt the aftereffects of The Great Resignation, as turnover has increased and filling those vacancies has become increasingly difficult. Nearly every Industry is experiencing their own unique challenges as they attempt to hire and retain employees through this changing and competitive market.

Healthcare Industry

The Covid-19 pandemic was particularly challenging for the healthcare industry. While nursing shortages have been an issue for many years, and is projected to be a critical shortage by 2030, the pandemic worsened this issue. Nurses experienced higher levels of job-related stress and burnout which has led to increasing resignations and early retirements. This shortage of nurses not only brings many concerns over how this will affect healthcare in general, but it also brings challenges for healthcare organizations as they try to compete for the limited supply of nurses. Healthcare organizations are responding to this by hiring travel nurses or by hiring new nurses at a higher starting salary. Some nurses are actually becoming traveling nurses because they earn more than hospital staffers which only perpetuates the turnover and higher costs of hiring. Hiring travel nurses can bring additional challenges as the nurses can be unfamiliar with the specific healthcare facility’s practices and procedures, and they could have differing knowledge and skills than are needed to address certain medical cases. In addition, as traveling nurses’ contracts expire, the healthcare facility will again need to address the turnover which could cost even more in the future.

Non-Profit Industry

The National Council of Nonprofits conducted a survey that included over 1,000 nonprofits on the nonprofit workforce shortage and found that 42% of nonprofits have vacancy rates above 20%, with some as high as 30%. Historically, many people are attracted to working at non-profits because of the mission-driven work, however, with increased expenses due to inflation and increased opportunities for significant pay increases at for-profit organizations, it is unsurprising that salary competition was rated as a leading factor preventing filling the vacancies. With the competitive job market, non-profits are limited with how they compete for talent, especially against for-profit organizations. This means that non-profits are experiencing the need to adjust their compensation above the market median. Oftentimes, non-profits need additional funding to be able to afford to increase their employee’s compensation. This can lead to new employees receiving a higher starting salary, while the more tenured employees remain below market, which can end up leading to wage compression issues.

Higher Education

Yet another industry that has experienced significant talent acquisition and retention challenges is Higher Education. For many universities, the decision to change compensation is not entirely up to them, instead an outside entity has to approve the compensation decisions. For example, many public institution’s budgets are set by the state legislature, so compensation adjustments are not easy to come by without providing some compelling reasoning for the increases. Oftentimes, to get a compensation adjustment approved, an employee is given a new job title even though their roles and responsibilities have not changed. For universities who are working towards being competitive with market, the overuse of certain job titles or the use of overinflated job titles can make it more challenging to determine the appropriate market pay.

As universities aim to increase their Diversity Equity & Inclusion, Pay Equity becomes an increased concern. However, many universities are unable to apply Attorney Client Privilege to robust compensation studies. This puts many universities at increased risk for backpay litigation and thus can lead to the avoidance of conducting these studies. This, of course, can result in pay discrepancies continuing to be an issue at universities without a clear path for resolution.

Common Struggles Across Industries

Given the increased difficulty in attracting and retaining employees, many employers are expected to compete by increasing their starting salaries. However, this can lead to wage compression and potentially even to unintended pay disparity issues. This can also result in two of the main predictors of pay, time in company and time in job, losing their predictive power which ends up negatively impacting the organization’s compensation philosophy. When this happens, it becomes difficult to accurately model pay at an organization, and thus pay equity efforts become increasingly difficult.

There are no shortages of challenges for organizations right now, and as the workforce continues to change, more challenges will appear. Compensation is a universal challenge that organizations are facing and determining the path forward through the changing market and new laws can be overwhelming. It is important that organizations stay aware of these changes and ensure that their compensation practices are responsive and won’t bring forth additional challenges or legal ramifications.


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