As Europe and the US come out of the pandemic-induced recession, many organizations are experiencing higher levels of employee attrition that they have for many years.

A recent Microsoft study of 30,000 workers in 31 countries, indicated that 40 percent of the global workforce is considering leaving their employer this year.

In March 2021, there were 8.1 million vacant US job openings and the US Chamber of Commerce’s “The America Works Report” of June 2021identified there were half as many available workers per open job versus 20-year averages.

"With employers desperate to attract and retain the talent that they need, it means that we’re starting to see employers willing to offer more for the right person"

It’s not just the US. Globally, nearly 70 percent of employers reported difficulty filling vacancies (Manpower Group Annual Talent Shortage Survey 2021).

What’s driving this mass exodus?

Employees experienced a drop in standard of living following the 2008 economic crash and for the first time in over ten years, salaries are increasing.

The 2008 crash had an impact on employee salaries, that outlived the crash itself. For example, average salary increases in the UK reduced from around 5 percent to around 2.5 percent per year for the following ten or so years.

While salaries increased slowly, UK annual inflation was between 3-5 percent, meaning that even in the years when inflation fell, workers’ salaries had already fallen behind in real terms.

Since April 2021, however, UK salary increases, according to the Office for National Statistics, have reached levels of around 7.5 – 8 percent.

With employers desperate to attract and retain the talent that they need, it means that we’re starting to see employers willing to offer more for the right person.

Money is not the only reason that employees are leaving their jobs.

There are as many reasons to jump ship as there are employees leaving their jobs. From a desire for more “life” in the work-life blend equation; to how they feel their employer supports their long- term career aspirations; to how much flexibility they’re being given as their company returns to office life.

But while they might not be leaving their previous employerdue to unhappiness with their salary, they’re likely to be joining the new company for more money.

How might companies start to think differently about base pay?

Many companies currently operate salary bands, short- and long-term variable pay and benefit eligibility criteria that are all driven by job size. This leads to a reward structure that, in today’s world of Amazon and Netflix, seems old-fashioned and very structured.

If companies want employees to increase their skills to meet the company’s needs, it’s likely we’ll start to see more companies rewarding employees based on skills. This could lead to pay increases driven by the acquisition or enhancement of skills rather than performance. Skills include competencies, certifications, qualifications, hard and soft skills and meaning that the company would define roles based on the criteria for success on the job.

In today’s context of talent shortage, I am starting to see that for the right candidate with the required skills and competencies, there is already a move towards this practice, where superior skills are leading to a premium on base pay close to or over the top of current job-size salary ranges.

What about variable pay?

As a result of increasing shareholder concerns around executive pay and attempts to link pay and performance more closely, it’s become common over recent years to defer more compensation and todeliver it via equity plans. And, at the same time, implementing requirements to hold shares throughout and for up to two years post-employment.

In 2018, PWC and the London School of Economic undertook research across 1,100 employees in 43 countries, and found that many executives:

Would choose fixed pay over a higher rate of variable pay;

Undervalued deferred pay by around 50 percent over three years;

Were dis incentivised by complex or ambiguous plans.

There are also questions about how effective variable pay really is in driving performance and shareholder alignment, particularly if executives discount the value of the plans.

As we transition to a world where personalisation is key, is now the time to understand our executives better? To understand what drives them personally so we can ensure that their mix of pay incentivises them to deliver the return that shareholders are looking for? Is it time to wave goodbye to complex plans with multiple performance criteria and replace them with simpler holding requirements?

So much for attraction – what about retention?

If money’s not the only or even main reason why employees are leaving, are monetary retention-payments the best way to try to retain them?

Coming out of the pandemic with many employees re-evaluating their relationship with their employer, giving them more money might just be the laziest thing we do.

Instead, we need to understand individual employees’ needs and update our total reward offering to encompass everything from opportunities for more exposure to senior leaders; variable mixes of pay and benefits; to access to coaching.

In summary..

Now is the time to review your reward offer to ensure that it truly drives the right performance and is what employees want.