Over 47 million people in the US left their roles for greener pastures in 2021 - the highest number of resignations over a 12-month period ever. Data is still being collected to determine the percentage of retirements vs. resignations for switching jobs but the effect on the workplace is the same. The pandemic exposed another raw nerve successfully covered up for decades: The American Dream is injured. In 1973, a New York City Firefighter could fully support a family of 4 and own a home in Brooklyn while having a savings account; conversely, in 2019, a NYC Firefighter’s salary could barely cover the mortgage on a 2-bedroom townhouse in Brooklyn.
Employee wages have not kept up with inflation. In a recent study by Dr. Thomas Carnahan at Berkshire, the median salary of all Americans should be $88,312 if salaries kept pace with inflation since 1980. The actual median salary in 2019 was $68,703. Unfortunately, inflation is not the only measure of financial well-being; and to keep up with the cost of housing, medical care, and executive salaries, the US median gross income would need to be increased an additional $41,211 to a total of $130,523 to truly have an equitable standard of living to our own society just 42 years ago.
Losing employees is always tough, but early data is showing that resignation rates increased the most among mid-career employees, meaning that companies are dealing with significant losses in organizational knowledge. The reasons for this rapid outbreak of “Quits” vary by industry and organization, and an investigation of root causes should be the first step for any organization looking for solutions to this problem. However, there are data around the common factors behind this current outbreak of resignations, and ‘Better Compensation’ was the 2nd most commonly cited factor that job switchers sought out in a new job.
There were 10.9 million job openings at the end of 2021. In addition, people are seeking out remote opportunities more than ever. Due to these changes, workers have more leverage than ever, and some are even quitting to pursue freelance opportunities or passion projects. They know that after a couple hard years starting out, they will get a higher percentage of the revenue working on their own than they ever would working for someone else.
Yet many employers still don’t research market forces and set up systems to ensure that they are competitive and in ever changing market. There are many reasons why this might be the case. Often, employers don’t provide cost of living adjustments in addition to performance-based raises, meaning that the standard 3% raise just barely keeps up with the average inflation rate of 2.7% (which happened to be around 7% in 2021). Employers that follow best practices in compensation may miss market changes in specific jobs or industries if they don’t refresh their market data more often than the “old” belief of every 3 years.
Market data is changing quarterly. A Market Analysis can provide a solution to all these problems by providing employers with current and accurate market compensation data while also helping to develop or refine an organization’s pay grade structures.
How does a Market Analysis work? The process is relatively simple and follows these steps:
- Job Matching: The first step involves analyzing each job title and job description to find the best possible match in a trusted market database.
- Pay Grade Building: Using the market compensation data for each job match, roles can be slotted into pay grades based upon the recommended starting salaries for each role. During this step, employers also need to decide whether they want to pay their below industry average (“market lag”), above industry average (“market leader”), or at the median (“competitive”). This decision can vary by role and is frequently based upon how critical different roles are to organizational strategy, as well as the level of difficulty in filling these roles.
- Flight Risk Analysis: Using each employee’s profile of education, experience, and certifications, an “expected salary” can be created that projects where the employee should sit within their pay grade. The range within the pay grade is broken up into quartiles. Employees who have just started in a role with very little previous equivalent experience will have an expected salary closer to the pay grade minimum (Quartile 1), while employees who have a significant combination of Time in Role and equivalent experience will have an expected salary closer to the pay grade maximum (Quartile 4). Any employee who is paid at least 2 quartiles below their expected salary will be considered a “flight risk”—meaning that if they were to explore the job market, they would be likely to find a higher paying role very quickly.
Compensation is far from the only factor that has contributed to the Great Resignation. However, unfair pay can certainly lead to dissatisfaction in a workforce, and taking steps to ensure that pay is comparable to industry averages is one way an employer can signal how much they value their employees. A market analysis can be a highly effective tool in helping ensure that an employer knows how they should value different roles and prevent this mass exodus from damaging their organization.