The biggest compensation problem faced by HR professionals remains salary compression. It developed during the boom years and has lingered on like a bad hangover. Considering the current economic situation, it won't be easy to fix, since there is little money now to throw at the problem. Altogether, nearly 20% of HR professionals said that salary compression is their single biggest headache.
Salary compression troubles companies with 600 to 1,799 employees the most, at 27.8%. It also plagues a quarter of firms with 1,800 to 6,999 people.
How Is Compression Being Handled?
Some companies are finding money in the budget to deal with salary compression. "We instituted a larger increase in salary structure for the classes of employees affected most by the salary compression," said a compensation analyst at a government organization, with 6,031 employees in the Northeast. Some organizations reported giving increases to entire groups of affected employees, while others acted on a person-by-person basis. The solutions can take time, sometimes at least two years. "We implemented a policy to adjust pay within two years if the employee meets company performance standards," said a manager at a Northeastern business services firm with 4,500 people.
Besides using money, some companies made managers part of the solution. "We implemented across-the-board adjustment and used the education approach to train managers how to properly administer salaries. Our organization placed too much emphasis on internal equity and not enough on individual skills and qualifications," said the senior compensation analyst at an insurance firm in the Northeast with 1,300 employees.
Some companies, however, have not been able to solve this problem yet. "Salary compression is our biggest problem, and it has not been resolved-and will not be, considering we are reducing, if not freezing, merit increases in 2003," said the HR manager at a nonprofit in the Northeast with 1,800 employees. Nevertheless, salary compression affects few nonprofits, at 15.2%. On the other hand, 28.6% of education and a quarter of health care firms are trying to resolve this matter. This issue also concerns financial firms, with 21.4% saying they are trying to end salary compression.
Hot Skills Still Burning
"Hot skills" was the main buzzword a few years back. While the use of this phrase may have waned, the problem itself has not. Again, recruiting and retaining people with these skills is a bigger issue among companies with 600 to 1,799 people, at 22.2%, followed by firms with 1,800 to 6,999 employees, at 19.6%.
Interestingly, it is a bigger problem on the West Coast, with 24.2% of firms struggling with hot skills. Organizations in the South Central region are the least concerned, at 12.1%.
Exactly what comprises a hot skill varies, but essentially it is any skill that is in enough demand to affect the salary market. Currently, these skills are mainly in fields related to health care-for example, nursing. IT personnel with experience in certain areas are also considered as having hot skills. "Nursing salaries-we are still working on how to compete with salaries offered by hospitals. As a medical group, we can't compete with hospitals," said the director of HR at a health care firm in the Midwest with 540 employees.
Not surprisingly, health care companies reported hot skills as a problem most frequently, at 37.5%, followed by nonprofits, at 19.6%, and financial/banking firms, 19%.
Strategies vary. Some companies simply offer more money, but, in these tight times, that is no longer an option for many of them. Instead, some offer short-term money, such as recruiting and sign-on bonuses. "Machine tool mechanics and N/C technicians are very difficult to find; thus, we have to be unique in compensating," said a manager at a South Central manufacturing firm with 627 employees.
Other companies emphasize their benefits package or other nonmonetary perks such as flexible scheduling when vying for hot-skilled recruits. The main point is to compete for these employees without breaking the budget.