The Great Resignation, Hiring & Pay Equity

The Great Resignation has been a hot-button topic for over a year now. Over 47 million Americans left their jobs in 2021, the highest number in a calendar year in the US, and the worker shortages you’ve noticed at your local gas stations and retail stores reflect this trend. This mass exodus, in combination with rapid inflation and changing legislation, has left companies scrambling to answer important questions. Who is it that’s leaving? What do we need to pay to retain existing employees and recruit new ones? What implications do these decisions have on pay equity at our organization, and how can we make sure we’re compliant with all the new and different state laws? These are complex questions and require that employers keep several considerations in mind when making decisions.

The first step is figuring out on who has been leaving the workforce and why. There are numerous factors at work, but one important thing to reflect on is that, for some employers, this period of time might be better classified as ‘The Great Retirement’. In 2021, more 55+ year-old employees than ever opted to retire early. When the pandemic changed the context in which many Americans conducted their work, many older workers determined that they would rather focus on health and family than be forced to make wholesale changes to the way that they worked. Furthermore, the high rate of quits we are experiencing is actually the continuation of a trend that has been going on for over a decade. Since 2009, the rate of quits amongst American employees has risen every year except for 2020, when the outbreak of the pandemic initially resulted in slowed resignation rates. When viewing the number of resignations in the context of total employment, it’s clear that 2021 wasn’t as much of an outlier as it may have initially seemed. The remaining factors that experts have identified in contributing to resignation rates fit within this context as they have increasingly been sticking points between employers and workers over the past decade. These can be summarized in terms of cultural shifts, compensation, and work-life balance. The expectations of American employees in these areas have shifted over the years, and many employers have resisted adapting. As a result, large percentages of employees are ‘Relocating’ or ‘Reshuffling’ to companies or areas that will pay more, offer better benefits, and/or offer better work-life balance. With everything that is changing, employers should consider whether their long-held policies & practices fit the current environment. Companies struggling to recruit and retain talent should want to know: “What is causing my employees to leave, and what changes will make this a desirable environment for workers?”

 The next items for employers to wrap their heads around are inflation and rapidly changing market pay. Businesses are expected to increase pay an average of 3.9% in 2022, the highest rate since 2008. Employers have seen huge changes in expected pay amongst professionals and front-line managers and have been forced to react when backfilling for these roles. However, adapting to the current market in hiring can create new problems if those same adjustments aren’t applied to current workers. Bringing new workers in at higher pay rates than experienced employees will not only alienate incumbent employees but can create an Age-based pay equity concern if under-40 employees are coming in at current market rates while older employees remain stagnant. This is especially a concern for hourly positions, where the changing market has resulted in severe compression between new and experienced employees. In addition to all of this, if new hires are paid according to the current market while existing employees merely receive their usual raises, this will reduce the ability of experience-based variables to predict pay in a robust pay equity study. In other words, it will be more difficult to ascertain whether any wage gaps between demographic groups are due to objective job-related factors or true disparity. If the market is dictating that your organization increase the pay ranges for new hires, it is strongly recommended that these increases be applied to existing employees as well.

Finally, there is the barrage of legislation on compensation that is erupting around the country for companies to keep in mind. These include the OFCCP’s new directive, the Executive Order on pay transparency, and the flurry of state and local laws that have been passed in the past two years. Pay is more of a focus than ever for regulatory agencies (not to mention employees), and thus it is imperative for employers to get their ducks in a row. In order to balance all of the competing priorities, it is recommended that companies speak to a knowledgeable employment attorney to discuss pay practices, and now is a great time to begin work on a pay equity or market study to evaluate the impact of the recent changes on your compensation philosophy. As mentioned above, there can be unintended impacts related to protected classes when this type of widespread change occurs, and it is important to stay abreast of any risk areas that may have opened up.

With all of the change that is going on in the employment world, it can be hard to keep up. When resignations, pay, and inflation are all at historic rates, it is a clear sign that the environment is changing, and companies must nimbly adapt. Many of the trends we are seeing have been going on for years and are unlikely to disappear any time soon. The companies that are most likely to succeed in this ecosystem will have to offer flexibility, competitive pay, opportunity, and equity to their employees.