- The asking price is getting higher. A New York Fed report showed the lowest average salary that survey respondents said they would be willing to accept for a new job increased over the past four months to a record-high $81,822.
- Salary, though, is only part of the package. While pay can be primary with candidates, don’t forget to detail other elements of a holistic rewards offering.
- Don’t lose sight of pay equity. While increasing hire-on rates are certainly a concern, equal attention should be placed on internal pay equity.
Compensational professionals may be seeing it, experiencing it and chatting with colleagues about it, but the Federal Reserve Bank of New York recently captured the size of its existence. “It” is the average (or, more appropriate, higher-than-average) dollar figure job candidates say they need to accept a job offer.
In its triannual Survey of Consumer Expectations Labor Market Survey, released April 8, the New York Fed found the average “reservation wage” — the lowest salary U.S. respondents said they would be willing to accept for a new job — increased to $81,822, an all-time high and an 11.5% change vs. November 2023 ($73,391). This increase was most pronounced for men, respondents aged 45 and under, and those with an annual household income greater than $60,000. For reference, the reservation wage was $75,811 one year ago and $73,283 two years ago.
Gene Camm, director in the Compensation Resources Group at EisnerAmper, an audit, accounting and tax advisory firm, said the increase signifies a bit of anxiety for employees that are looking for or are being recruited to a new opportunity.
“[This means] they may be willing to leave their current position, but only if the increase in pay is substantially more than what it was just a few short months ago,” he said. “The drivers of this increase could range from a concern for job stability to the increasing costs of consumer goods.”
Camm stated the increased “asking price” will likely force employers to make a decision: increase their pay budgets and offers for top talent who are currently employed and in the sights of recruiters, or keep pay in check and pursue workers who are actively looking for work and who may need a bit more training (to reach the skill level of higher-priced talent).
“If an employer’s preferred hiring method is recruiting actively employed candidates, they will likely compete by increasing the starting rate, which could have a ripple-down effect to their current employees and, ultimately, their bottom line if they remain consistent with pay equity compliance,” he said.
So, What Can Total Rewards Pros Do?
For total reward professionals, Camm explained, the goal should be to design a complete package that has equal importance to employees and job candidates.
Beyond base compensation, Camm said, they should emphasize:
- Short-term incentives tied to annual company profitability
- Long-term incentives aligned with creating value over the next five to seven years
- A structured employee development program, and
- Comprehensive health, welfare and time-off benefits.
Michael Citron, a principal and compensation and rewards consultant at Mercer, noted that within the past few years, his company has seen pay expectations (and resulting pay movement) rise at a rapid pace. For example, Mercer’s March 2024 Compensation Planning Survey found that while average merit (+3.3%) and total salary increase (+3.6%) budgets are down from recent peak levels, they still remain higher than pre-pandemic practices (consistently around +3.0%).
“Importantly, we’ve also observed an increase in off-cycle salary adjustments for 2024 — 62% of organizations plan to do so, up from 52% that planned to do so in November 2023,” Citron said, adding that among those organizations offering off-cycle salary adjustments, 63% report the need to counter competing offers as a primary reason.
“While offering competitive compensation may be table stakes in today’s labor market, not every organization needs to be — nor can be — at the top of the market,” he said.
Similar to Camm, Citron stated many organizations that successfully attract and retain talent analyze their holistic rewards offerings, including compensation and the benefits captured in the bulleted list above, as well as flexibility and “the ability to do purposeful work with a meaningful impact.”
“By listening to employees and understanding market practices, companies can optimize their total rewards strategies to appeal to the unique talent that they need,” he said.
Citron explained that, for some, optimized strategies may not include market-leading compensation but rather an emphasis on other areas of total rewards, which can still allow them to retain talent in the face of high market salaries.
Remember to Keep Pay Equity Top of Mind
Lindsay Wiggins, North America pay equity co-lead at WTW, said that as salary offers (and demands) continue to escalate, employers can feel pressure to fill job vacancies with increasing rates of pay. She explained, though, that while snowballing labor costs are certainly a problem, internal pay equity should be of equal concern.
“Employees expect their employers to pay fairly,” Wiggins said. “This definition of ‘fair’ includes pay commensurate with their skill and contribution, as well as in line with others doing similar work.”
Wiggins noted that beyond this expectation, there is potential risk when an employer does not consider the relative levels of pay within the organization.
“Each job offer should consider the rate of pay for current employees with as much scrutiny as the demands of the external market,” she said.
Mariann Madden, North America pay equity co-lead at WTW, advised total rewards professionals to assess their salary budgets and build strategies that determine how they:
- Reward for promotions
- Keep up with market movement
- Manage the new federal minimum wage levels
- Mitigate pay equity risk
- Support managers in allocating their budget dollars in a consistent and fair manner.
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