This is not the time to panic.
Sure, there is a feeding frenzy in the recruitment world right now. Top talent is leaving to test the open market in unprecedented numbers. They are being lured away from existing jobs with the promise of salaries that are double or even triple what they’re making right now. And gaudy signing bonuses are more the rule now than the exception.
It would be easy to throw caution to the wind and join in the competition to win talent. After all, this isn’t the first time many industries and organizations have suffered through a shortage of skilled workers. For a company that has struggled to fill all its key roles, the consensus may be that, notwithstanding the huge cost, they cannot afford to be left out of the war for talent.
But let’s remember, we’ve been here before, and the hard lessons learned when competition for talent has been just as fierce should cause everyone to re-think their strategies now.
The pre-financial crisis hiring boom of the mid-2000s
Back before most of us had heard of terms like “sub-prime mortgages,” there was a similar rush to hire top talent through whatever means necessary. Particularly in the tech sector, unproven companies were spending wildly to acquire workers with forward-leaning computer skills. Often, these lucrative offers were being made to candidates who were right out of school, well before they were able to accumulate any kind of real work experience.
The rapid escalation of wages, along with the inherent risks of the tech bubble, contributed to the financial crisis that arrived in the fall of 2008. Back then, when the markets came crashing down, many of these companies either failed outright, or engaged in massive downsizings that left a lot of these overpaid, under-utilized workers out on the street.
It’s obvious that those market conditions are no longer in effect. The Great Resignation, the headline-term given to the unprecedented number of people quitting their jobs to look for other opportunities, has combined with a global skills shortage to set the table for feeding frenzy 2.0. Will it end the same way?
High salaries and bonuses will define the pandemic age and beyond
While the pre-2008 talent shortage was driven largely by the alarming expansion of companies in knowledge industries, this time around employers in all sectors and industries are feeling the pressure to show current and prospective employees the money.
Competition for highly skilled workers is so fierce that employers are scrambling to re-imagine their entire pay structures. Amazon, for example, announced in early 2022 that it was more than doubling its maximum base salary for corporate and technical employees to $350,000 from $160,000.
The trend towards higher salary and bonuses is also being felt in sectors that rely on less-skilled, hourly wage-earning workers. Denver-based United Airlines is offering starting salaries of nearly $20 per hour and up to $10,000 in bonuses for agents and baggage handlers. Retail giant Target, meanwhile, is now offering starting wages of up to $24, up significantly from the $15 benchmark it established in 2017, and expanded access to pension and health care benefits. Now, any Target employee who works at least 25 hours per week can enroll in the company’s medical plan.
Most interesting is the massive expansion in signing bonuses as an incentive to lure top talent. A September 2021 survey by GlobalData, a London-based labor force analytics company, found that job posts featuring sign-on bonuses grew by 454 percent between August 2020 and August 2021. The survey found that bonuses ranged from a modest $150 to whopping $100,000 incentives for talent with very specific skills and technical expertise.
In a global talent market like this, how are companies supposed to compete without breaking the bank?
How to keep your head while other hiring managers are losing theirs
Experience tells us that overpaying for talent, and making rash hiring decisions, will ultimately come back to haunt you. However, there are ways to avoid bad outcomes and ensure that if you’re going to pay a premium, you get good value for your investment.
- Whatever you do, don’t panic, and don't abandon the best practices built into your hiring processes. The big mistake many tech companies made back in the mid 2000s was to hire rashly and overpay without properly vetting candidates. If you need to match the market rate for a particular kind of skilled worker, you need to make sure they will bring value to your organization. Overpaying for unproven talent is particularly risky in this kind of market. However, if you stick rigidly to your hiring process, and do all the requisite assessments, you may be able to justify a higher salary and bonus structure. Remember, be agile; don’t be rash in your hiring decisions.
- Is there something other than money that could be used to attract top talent? Prior to the pandemic and the current hiring frenzy, surveys consistently showed that money on its own was not the most important issue for top talent in choosing an employer. Highly skilled workers want to go to organizations that have strong leadership cultures and provide a psychologically safe working environment. They want to work for employers who share their values and invest in future career development. Some employers have also turned to perks such as opportunities for a hybrid work schedule or enhanced PTO. Other companies are offering to donate to a candidate’s charity of choice. There are many ways to incent talent other than cash remuneration.
- Tie higher pay to performance. Some of the world’s biggest companies are offering higher overall compensation packages but tying increased salary and bonuses to performance. A deferred pay or bonus system can ensure that an employer is getting top value when paying top dollar. You can offer new hires the opportunity to review pay and performance in three to six months, as opposed to annually. Create a culture where new hires are encouraged to prove their value and earn their way to higher pay and bonuses.
- Have a plan in place to make new hires successful after they’re onboard. In previous hiring frenzies, many organizations made the mistake of taking new and unproven hires and throwing them directly into the deep end with an expectation they would start producing right away. At the best of times, new hires need onboarding support to fully integrate into their new companies. There needs to be regular check-ins and dialogue to ensure they are getting everything they need to succeed. If you’ve been forced to match market rates and overpay for talent, making a commensurate investment in onboarding and integration will not only get people up to speed quicker, but it will also ensure you don’t lose some of these hires in the first six months.
- Keep one eye on your existing talent. In January, 1Password, a Toronto-based password manager firm, announced it was offering a 7.5-percent cost-of-living adjustment to its existing employees. The message from the company was clear: it does not want to lose people to the Great Resignation even as it competes in an overheated talent market to hire new people. It’s a cautionary note that all employers should heed. Forgetting about your current workforce to focus all your time and resources on acquiring new talent is a recipe for disaster. And as is the case with recruiting new talent, taking care of the people you already employ does not necessarily involve huge bumps in salary and bonuses. 1Password, for example, also introduced a new PTO program that gives employees 25 days “to do with what they please” right from the moment they’re hired. Incentives like this resonate in today’s talent marketplace, particularly with individuals who are looking for a longer-term gig.
Whenever salaries go up and new benchmarks are established, they almost never go back down again. That makes it extremely important for all employers to take a thoughtful approach to talent recruitment that is not only effective at luring skilled workers, but also affordable for the long-term.
Throwing caution to the wind without considering the implications is simply not going to be a winning strategy.