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Attraction, retention challenges will peak in 2022, but won’t end

Globally, employers can expect new hurdles in 2023

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By Hatti Johansson and Mei Nishiwaki | August 2, 2022

HR organizations around the world are scrambling to figure out the best way to retain critical employees and attract new ones. Salary increases are just one piece of the puzzle.

From labor market shortages to challenges related to finding and keeping hourly workers coming out of the pandemic, HR organizations around the world are scrambling to figure out the best way to retain critical employees and attract new ones.

But not all labor challenges are created equally. The ability to get the right people for the right jobs at the right time varies across markets and jobs, making it important to understand where challenges exist, which roles are most at-risk and how organizations are responding.

Attraction and retention problems have spread around the world

Ongoing attraction and retention issues have been a serious concern this year, according to the July edition of WTW’s Salary Budget Planning Report. Labor market challenges and inflationary pressures have spread around the world, and 94% of organizations are experiencing difficulties attracting talent, according to respondents from the more than 130 countries represented in the survey.

While employee retention also is a struggle, it is not as big a challenge as attraction. Globally, organizations expect attraction and retention challenges to abate in 2023.

Overall, the number of respondents who expect to experience attraction challenges in 2023 is almost half of that in 2022, decreasing from 93.5% to 42.5%. Organizations also expect retention challenges to drop, but to a lesser degree (89% to 57.5%). This indicates that organizations believe retaining employees will be harder than attracting them, and that means they will need to respond differently than they have been.

IT/digital talent top the list of employees posing the greatest challenges

It’s no surprise that attraction and retention challenges are particularly acute for roles that have the highest internal demand combined with talent that is in short supply in the market. Figure 2 outlines the top roles organizations have identified as the most difficult to attract. These employee groups also present retention challenges.

IT/digital roles were the hardest positions to attract and retain talent in the more than 130 countries represented in the survey, and engineers followed suit in most countries. However, there were differences for the next-hardest roles to attract and retain.

  • Attracting executives was more challenging than attracting engineers in Laos (50%), Mongolia (55%), Nepal (50%), Macau (51%) and Bolivia (55%)
  • Retaining sales representatives was particularly difficult in more than 58% of organizations in Laos, Mongolia, Madagascar, Nepal, Brunei, Macau and Botswana
  • While retaining hourly workers has been making headlines, only organizations in Morocco and Nicaragua said they were having challenges with these roles

Organizations are looking beyond pay alone to address challenges

More than half of organizations (54%) have already taken a variety of both nonmonetary and monetary actions to address their attraction and retention challenges, according to the Salary Budget Planning Report. Another 37% plan to do so before the end of 2022. A deeper analysis of the data indicates that organizations’ actions are more nuanced, targeting specific behaviors or groups.

Taking a total rewards approach

To attract employees, organizations are taking a total rewards approach. While sign-on bonuses or equity and higher starting salaries are featured, many organizations also are looking broadly at the employee experience by offering workplace flexibility, training and enhanced health and wellness benefits to compete for talent.

Similarly, to retain talent, organizations are looking beyond pay to, again, improve the employee experience and keep employees engaged. This includes emphasizing diversity, equity and inclusion, allowing employees to work from anywhere and increasing training opportunities.

Segmenting the workforce

Globally, organizations indicated that targeted increases (45.4%) and a compensation review (51.2%) will be limited to specific employee groups. Compare this to organizations that have already made changes or are planning changes to benefit their full employee population with, for example, higher base salary increases for all employees (25.8%), more frequent compensation reviews (13%) and a full compensation review (36.9%).

Reviewing and revising the compensation strategy

The need for a compensation strategy is more important than ever as supply and demand issues and economic disruptions are expected to continue. 30.4% of organizations have changed their compensation philosophy, according to the survey, and another 47% plan to make changes.

Tactically speaking, these shifts include updating salary ranges or extending pay-range maximums to adapt to changing market conditions. One-off cash payments such as retention or lump sum payments (44%) and one-off equity or long-term incentives (30%) also feature high, as they do not impact long-term fixed costs.

A rapidly changing market requires a framework that leverages market data to inform changes. For example, today inflationary pressures and a labor market shortage are driving decisions, but tomorrow organizations may be looking at a market downturn or full-blown recession. And that requires an entirely different set of actions.

Prioritize your organization’s actions

In the face of (continued) unusual times, it’s important to avoid potential pitfalls in your salary planning. To that end, there are a handful of do’s and don’ts to keep in mind:

  • Do optimize your total rewards. This could mean focusing on both short- and long-term incentives or an increase in the use of temporary allowances. Essentially, this is about using your rewards offering to its fullest – and includes an assessment of your organization’s overall employee experience.
  • Do be careful about simply raising salaries. While it can address employee demands for the moment, such increases under recessionary conditions will be difficult to maintain and may create the need for actions such as layoffs. And inflation-type salary adjustments won’t lead to a return of budget dollars when markets improve.
  • Don’t confuse “cost of living” with “cost of labor.” Inflation is a measure of the increase in the cost of living, or the amount of money needed to cover basic living expenses (e.g., housing, food, taxes, health care). How much employees earn is driven by changes to the supply and demand for labor – the cost of labor (not of living). Cost of labor can be affected by demographic trends, labor participation rates, technological advances, and growth in productivity.
  • Do assess the supply and demand of labor. Though the headlines about labor shortages and inflation seem to have started in the United States, they have become global concerns. However, the supply and demand issues – and resulting pressures – have played out differently in different countries, which means that the range of actions to address these concerns varies. Organizations should pay competitively based what works best in the different markets.
  • Do segment your employee population. There are differences among employee groups, based on our survey results. It is important to analyze how cost of living affects different employee groups as well as which jobs have the greatest challenges in attracting and retaining talent.

Finally, it is worth reiterating that labor challenges are not uniform around the world, and that means there is no one-size-fits-all solution. It also means that compensation and HR professionals need to prioritize the actions their organizations take based on the needs of both the business and employees. And leveraging sound market data will help you fit each piece of the puzzle together.

Authors

Global Innovation and Product Development Leader, Rewards Data Intelligence

Product Development Director, Rewards Data Intelligence

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