Focusing on Pay: 4 Pay Strategies for Increased Retention

12.08.22Baylee Davies

Focusing on Pay

4 Pay Strategies for Increased Retention

Trends regarding employee satisfaction have shifted as we move out of the pandemic. Over the past three years, employees have required employers to focus on burnout, mental health and work/life balance.  Now due to inflation and the effects of the “great resignation” which caused a talent shortage and increased pay requirements for new talent, pay has become the top concern for employees.  According to a recent Mercer study “Mercer’s 2022 Inside Employees’ Minds Study pay is the top reason employees would consider leaving their employer.  The study shows that the number one concern among those employees surveyed was financial, specifically covering monthly expenses. Now there is an urgency for employers to focus on retention and pay strategies, so how do you achieve that?

1. Establish/Reevaluate Pay Strategy

This is the time for companies to establish and/or reevaluate their pay strategy (or compensation philosophy). How is this done? With the focus on pay, leaders establish where the company’s pay should be in comparison to their competitors and the market.  The question to be answered is – Will we pay above market, below market average or at market average?  There is no wrong answer. This answer is dependent on the company and its business strategies. 

Then decide on how and where a company wants to invest the pay dollars. 

These answers make up the company’s pay strategy, which is defined by SHRM as “a formal statement documenting the company’s position about employee compensation”. It explains the “why” behind employee pay and creates a framework for consistency. Employers use their compensation philosophy to attract, retain and motivate employees. 

2. Assess The Market and Align Pay Ranges

With California’s new Pay Transparency and Pay Scale Disclosure Law requirements going into effect on January 1, 2023, it is time for employers to evaluate pay ranges and ensure that they are aligned with pay strategies.

The new law requires the following:

  • Employers with 15 or more total nationwide employees: Position postings – pay scale, meaning the salary or hourly rate an employer reasonably expects to pay a new hire in the position must be included in the  job posting (advertisement) 
  • All Employers: Existing employees – upon request, employers are expected to provide the pay scale for the employee’s current position 
  • All Employers: An employer shall maintain records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment  

This new law truly is requiring pay transparency “employers are open about what, why, how and how much employees are compensated” and SDHRC recommends employers be strategic regarding pay.  We recommend: 

  • Conducting a market pricing study to evaluate the current market pay trends for all company positions
  • Use the market data and the company’s pay strategy to develop pay ranges for each position. Formulate new hire pay for each pay range (i.e. new hire pay range = minimum to midpoint of range)
  • Establish guidelines for pay decisions such as new hire pay, merit increases and equity adjustments

3. Pay Equity

With the shift to pay transparency as required by California, employers should also focus on pay equity.  Employees will have more information on what new hires are being offered and knowledge of their own pay range.  It will become even more important for employers to be able to answer the questions “why am I paid as I am and how is it both fair and timely.” SDHRC recommends employers be proactive in this area and prepared to answer these types of questions. Therefore, we recommend conducting a Pay Equity Study. This type of study compares pay decisions with the state of California’s Equal Pay Act requirements.  Study results identify differences in pay outside of requirements and provide recommended steps to remedy areas of concern.

4. Set the Annual Salary Budget

The Economic Research Industry defines the salary budget as “money designated over a specific amount of time with which to pay salaries.” Most companies establish a salary budget at the beginning of the fiscal year.  This budget is then allocated to cover merit increases, market adjustments, and equity adjustments based on the company’s pay strategies.  

For 2023, salary budget surveys from SHRM and World at Work report that the average salary budget for companies nationally is 4.5%.  With some organizations going as high as 7%.  This is a significant change. The BLS has reported an overall salary increase of 5% in its latest report. The average 3% annual increase to payroll which we have seen for well over 10 years is now in the rearview mirror for 2023.  

What should you do?  Use the market data as a point of reference, evaluate your company’s financial strategies (revenue, costs) and balance both to develop your company’s salary budget. From there allocate a portion of the overall budget to merit, equity and market adjustments based on the company’s pay strategy.  Example:  4.5% overall 2023 salary budget: 3.5% merit budget, 1% equity and market adjustment budget.  

SDHRC is here to help your company develop meaningful pay strategies, through all phases of the process depending on your priorities. Reach out to us and we can discuss your situation. 

It is important to remember pay is the basic reason why employees stay. Just one part of the equation. Most employees come to work for much more than money, they stay for:

  • the opportunity to grow
  • a career 
  • to work on projects that are exciting and interesting 
  • want the workplace to be safe 
  • want to work with people they like and trust

Everything is interlinked. SDHRC can help you balance the needs of your employees and overall business strategies to develop a holistic retention program. Contact us today to learn more about our compensation and HR services.


Written By: Cherie Beck, Director Human Resources, Strategy and Rewards and Kelly Dingess, Human Resources Consultant