Prepare for End-of-Year Pay Conversations with Eager Employees
Workspan Daily
December 09, 2022
Key Takeaways

  • Increased pay is on the mind. Given the uncertain economic conditions and inflated consumer prices, employees are more likely to seek pay increases in the final weeks of 2022.  
  • Seeking outside offers. Some research indicates employees who leave their job are making 7% more on average than those who stay — increasing activity to seek outside offers as leverage.  
  • Implement guiding principles. Organizations should first determine if an employee with an outside offer wants to stay, then develop guiding principles to determine the best pay levers to retain an employee.  
  • Have a transparent approach to pay. Employers should be prepared to enter into honest, transparent conversations with employees to ensure better outcomes this time of year. 

As organizations rapidly approach the 2022 finish line, much of the meticulous planning for a potential economic downturn in 2023 has been factored into budgeting decisions and financial forecasting.  

Yet, a prevalent sentiment among the employee population is 2022 wages have not kept up with inflation, thus compensation experts are anticipating a potential windfall of salary increase requests in the waning weeks of the year. A strategy being deployed by some employees is actively seeking outside offers to leverage into raises with their existing employer.   

While this isn’t a newfangled tactic, it’s being digested differently than it was a year ago during the height of the Great Resignation. Last year, many employees were motivated to leave their organization based on a variety of factors, including sour feelings for how their employer navigated the pandemic, or others simply looking for a new challenge or new opportunity.  

Now, however, more employees appear to be seeking outside offers for the sole purpose of receiving a counteroffer from their employer. Research indicates this is a prudent financial strategy, as employees who leave for other jobs are making 7% more on average than employees who stay put. With the consumer price index sitting at 7.7%, compensation experts say employers can expect an increase in pay conversation in the final stages of the year.  

“In order to keep up, employees are more likely to seek higher salaries or end-of-year bonuses this year than in the past,” said Tanya Jansen, co-founder of beqom.  

Given the uncertain economic environment, however, and — depending on the industry or specific company — 2023 salary budgeting, organizations are faced with a predicament when it comes to these end-of-year conversations and decisions with employees seeking raises.  

“It’s a very confusing time, more so than usual. There are a lot of different dynamics happening in the economy that are effecting the labor market,” said Lori Wisper, managing director, work and rewards, at WTW. “Honesty is still the best policy and clarity should be your goal.”  

A Transparent Approach  

Currently, there is no blanket approach  in dealing with internal talent seeking raises internally or externally, as some industries, like high tech and e-commerce, are pulling back significantly on spending and hiring. While other industries are still in growth mode, as indicated by November’s jobs report.  

Thus, Wisper said organizations should fall back on some guiding principles to navigate dicey compensation conversations at year end. Companies will have to assess whether an employee is worth keeping, examining the role’s vitality to the company and the employee’s long-term potential at the company.  

Once that’s assessed, she said, organizations then need to determine whether the employee wants to stay, because counteroffering an employee’s outside offer is merely a short-term solution if they aren’t engaged in their current role.  

If the employee does want to remain with the company, the guiding principles kick in and figuring out the best rewards levers to pull should be preset.  

“How much more money are you willing to give relative to internal equity and affordability,” Wisper said. “Then, there’s another element around what levers of pay do we use to keep them —  a pay increase, restricted stock, retention bonuses? All of those things will come into play.”  

Jansen advocates a proactive approach from employers that is transparent about employee pay. Rather than waiting for employees to approach managers with outside offers or requests for pay increases, organizations can have conversations with employees explaining their pay range, where they sit in that range and why, and then career pathing for how they can move up in a range.  

“Increased pay transparency won’t completely stop employees from searching for negotiating power,” Jansen cautioned. “Some may still look for higher salary offers from other companies because they want to emphasize their worth to their current employer, and show that competitors may be willing to pay them more, and value them more for their work.”  

Depending on the financial situation of a company, doling out end-of-year increases might not be feasible, which also underscores the need for transparency, Jansen noted. When employees fully comprehend why they earn the amount they do, they have greater trust in their employer and are less likely to break that trust by seeking an outside offer as leverage, Jansen said.  

Ultimately, employers should be prepared to enter into honest, transparent conversations with employees to ensure better outcomes this time of year.  

“Employers must be confident in their pay strategy before entering discussions around compensation with their staff,” Jansen said. “To prepare for those talks, employers need to be ready to share how factors like budget and performance can impact an employee’s pay, as well as how their benefits and other perks contribute to their total compensation.  

“By being able to discuss the exact factors that contribute to an employees’ total compensation (for example, factors like tenure, skill sets or location) and the reasoning behind their organization’s salary ranges, employers will be able to thoroughly address any questions or concerns.”  

Editor’s Note: Additional Content 

For more information and resources related to this article see the pages below, which offer quick access to all WorldatWork content on these topics: 

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