Comp & BenStrategic HR

LEAD, LAG OR MATCH THE TURBULENT MARKET: What is your compensation strategy in 2022?

It’s 2022 and everything in HR seems to be changing at lightning speed. “Great Resignation” is followed by news of massive layoffs in the tech world, and the looming recession is shaking up big companies as well as the start-up ecosystems. Inflation and rising Consumer Price Indices lead to employees clamoring for that salary adjustment while management teams are bracing for the revenue shocks and some uncomfortable board meetings.

So, in the middle of this, what should your comp strategy be in 2022?

Normally, your company’s compensation strategy will fall into 3 categories: Lead, Lag or Match the current market levels. What do these terms mean?

Generic market levels are:

  • Market median (50% of companies pay above this level, 50% of companies pay below)
  • Percentile 75th (25% of companies pay higher than this level) = Above the market
  • Percentile 25th (75% of companies pay higher than this level) = Below the market

If you target at the market median — you’re in a match position, i.e., you pay according to the market. If your company pays higher — you lead the market. If your company pays lower — you lag the market.

The company’s financial status and stage of growth plays a huge role in determining what compensation philosophy the company adopts – whether it’ll pay above-market rates, at market rates, or below them. Salary budgets are also impacted by economic conditions.

In the ‘lead’ scenario, in practice, this means taking the 75th percentile of the market value as your mid-point (100%) and building a salary range around it (+/- 20%).

However, in a turbulent market, chances are that your ‘match’ and even ‘lead’ position from 2021 have turned into a ‘lag’ position in 2022, potentially leading to an increased turnover in an already tight market.

What are some of the steps you can take?

  1. Identify (if you haven’t already) which team members are critical to your mission – your key people whose departure would endanger business success.

These key people might include:

  • Mission-critical executives leading key projects, initiatives or departments
  • High-potential leaders who are great successors for future C-level or executive roles
  • Top performers across the organization
  • Employees with in-demand skill sets hard to find in the market
  1. Obtain the freshest salary data possible for your local market (Fenix salary survey)
  2. Based on the market data, update your compa-ratios for your tech workforce (remember, healthy compa-ratios range from 80-120% of the mid-market values for the majority of positions; the spread can stretch for higher managerial ones, up to a comfortable 140%).
  3. Cross-analyze your critical and high potential talent with the compa-ratio data (we suggest creating 4 categories: below 80%, 80%-100%, 100%-120%, and above 120%).
  4. Address first the “below market” critical talent category, bringing these mission-critical people to market-level or above-market pay.

Based on your company’s financial situation and budget projections, you may be able to provide adjustments to other employee categories.

While pay cuts and salary freezes seemingly make a lot of sense as a knee-jerk reaction to a financial downturn or market volatility, it’s wise to think beyond just pure survival. Pay freezes can have a huge impact on morale, productivity, and retention, perhaps constraining your company’s ability to grow when the market conditions change.

Do you have access to updated market compensation data? 

How does your company know if your pay is really competitive? Employee surveys might not give you the most accurate impression of the ever-changing landscape of the talent market.

Fenix 2022 Software Development Salary Survey provides Tech employers operating in Serbia with up-to-date salary and benefits information, as well as promotion and voluntary turnover indices, enabling them to make informed decisions in the process of creating more effective strategies for recruiting and retaining employees in this sector.

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