Adjusting Pay Ranges to Accommodate Rising Minimum Wage

With a variety of pressures driving minimum wage up, we have been working with several of our clients to adjust their current pay ranges to retain and attract quality personnel. Several of our Arkansas clients have committed to around $13.50 per hour for entry level positions in 2022 and move on up to $15 per hour within the next one to two years.

One of our clients recently adjusted their overall pay range structure for 2022. They sought our advice on how to go ahead and start their entry level positions at $15.00 per hour and what grade levels would be impacted by this change. After running some different scenarios, we were able to provide a recommendation that would only impact the first five pay grades on a 25 pay grade structure. We also tightened up the minimum and maximum pay grade ranges with a minimum of 95%, 91%, 88%, 85% and 83% to midpoint for Grades 1 to 5 respectively, and a maximum of 110% of midpoint for Grades 1 – 3, and 115% for Grades 4 and 5. At Grades 6 and above, the minimum to maximum pay grade range spread returns to 80% – 120%.

The next step after creating this new structure will be for the client to determine the pay adjustments for each employee below the new minimums within their respective pay grade and also review employees in these grades and a few grades above Grade 5 for time in position to handle any pay compression issues arising from the new pay grade range structure.

Whether your organization is still paying the Federal wage minimum of $7.25 or something higher based on state laws, there will be continual pressure to increase your minimum wages. It is important that you establish a fair, equitable and financially affordable pay range structure which may span over a number of years depending on where you are in your marketplace.

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Dealing with Wage Compression Issues

Stephen Miller, CEBS, who is an Online Manager/Editor covering compensation and benefits for SHRM Online, wrote an excellent article a couple of weeks ago titled, “As Minimum Wages Rise, Prepare for Pay Compression Issues.”

The first two paragraph of his article are presented below.

Pressure to increase wages for the lowest-paid employees, driven by the need to attract workers and to stay ahead of rising local, state and federal minimum wage mandates, is “a red-hot compensation topic right now,” according to a panel of pay authorities who spoke at WorldatWork’s 2021 Total Rewards Conference, held virtually in October.

Raising minimum pay levels can require revisiting pay ranges throughout the compensation structure, the panelists noted. As a related issue, many benefits costs, such as 401(k) matching contributions and incentive bonuses, are linked to employees’ base pay and will become more expensive as wage rates trend higher.

Stephen’s article goes on to say that due to the above, pay compression issues will be present and HR and financial professionals need to have a strategy to deal with these issues to avoid losing valuable employees or having a morale problem for employees’ where their pay has been compressed. Suggested alternatives include correcting any pay compression as you are raising minimum wages or handling the compression issues over a period of time.

There have been more requests for our firm to review potential compression issues as our clients are dealing with the need to raise their minimum wage salary range structure. Stephen completes his article with an excellent “Planning Ahead” list of steps to address pay compression for organizations.


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Pandemic Heightens Exodus of Baby Boomers from Workforce

Several articles have been written about the increasing number of retiring Baby Boomers during the past few years. The middle range of Baby Boomers (1946 to 1964) born between 1955 to 1956 have reached or will reach full social security retirement age of 65 to 66 and 3 months. The Pew Research Center completed and released some studies on the rise of Baby Boomer retirements in 2020 and 2021.

Based on Pew’s research, Baby Boomer retirements were 3.2 million more in the third quarter of 2020 than the same quarter of 2019. More recently, during the first quarter of 2021, 30.3 million Baby Boomers report that they were out of the workforce due to retirement.

The COVID pandemic heightened the exodus of Baby Boomers from the workforce due to layoffs and discharges associated with business closures and reductions. Baby Boomers are not returning to the workplace because they have run the numbers, rolled the dice and made the decision to stay home for financial, medical, family and personal reasons.

Baby Boomers returning to work in 2021 are filling previous full-time positions and some are opting for part-time positions so they can share knowledge and mentor the upcoming workforce generations.

Business owners and executive leadership teams have about nine more years for the remaining Baby Boomers to make their final decade of workforce contributions. Plans for knowledge and skills transfer, mentoring and taking-initiative training will be critical for business success and talent development as the Baby Boomers exit to spend time on the beach, in our national parks and forests, and with their families.


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Salary Range Structure Advantages

From time to time some of our clients will feedback to us that they don’t like salary range structure as it keeps them from being able to offer new hires and/or pay existing employees whatever they want to provide them. Thus, there is a tendency to throw out the salary range structure for the reason that it is too restrictive.

We believe salary range structure(s) is an effective compensation management tool and the advantages outweigh the disadvantages for organizations. Below are common pluses for establishing and adopting a formalized salary range structure.

  • Allows for a starting minimum, market midpoint and maximum pay range for each position based on the internal job value and current external market pay levels.

  • Provides a communications tool with the employee to speak to their development within the position and how their pay can increase through performance and time.

  • Creates consistency and defensibility around pay equity, pay adjustments, promotional increases, and other factors influencing pay.

  • Can slot in new hires and promoted employees into a new position based on what they bring to the position as it relates to experience, education, and skills.

  • Determines in concrete terms those that are behind, in the mix, or ahead based on where the employees are located within their respective salary ranges.

  • Establishes multi-level career ladders for career-minded employees that desire to progress up through the organization.

  • Maintains a maximum for each position to avoid overpaying and using those funds to ensure employees in the lower end of their salary ranges are moving up towards market midpoint.


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The Rising Tide of Minimum Wage

Bruce and I just completed an article titled, “The Rising Tide for Minimum Wage” for the HR Professionals Magazine September, 2021 issue that will be published in early September. This article provides information on several factors that are influencing a continuous rise in minimum wages for the lowest paid employees across the United States. The HR Professional magazine is a great resource for human resources and compensation professionals. The articles published in this professional magazine are current and comprehensive. Please seek an online copy of the HR Professional magazine and add this resource to your list of sources for staying current in the field of human resources. Here’s a link to their website: HRProfessionals Magazine


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Inflation’s Impact on Compensation

Stephen Miller, CEBS has written a three-part series article for SHRM titled “Inflation’s Return Will Affect Compensation.” The first part was published earlier this week on Compensation and the other two parts will focus on health care and retirement savings. Through his research and discussion with other thought leaders, he mentions several factors that are going to drive up inflation and compensation. These include:

  1. Increased federal unemployment payments have reduced the labor supply;

  2. Disruptions within supply chains have placed inflationary pressures on prices and wages;

  3. Consumer Price Index (CPI) in May rose 5 percent from 12 months earlier which is the largest yearly gain since August 2008;

  4. Federal Reserve Bank of St. Louis indicated that the economy is seeing more inflation than they expected which they believe could lead to an interest rate increase late next year.

Though it is still early for all the big compensation consulting companies to provide their 2022 wage and salary growth figures, Stephen mentions Trading Economics, which is an online platform providing historical data and economic forecasts, is forecasting a 3.6% increase for 2022 and a 4.0% in 2023. He also mentioned that Kiplinger is forecasting that the Social Security cost of living adjustment (COLA) for retirees will be around 4.5% next year.

Stephen completes the article by mentioning what some other compensation experts believe employers will need to focus on as inflation returns after being a non-factor for several years. These include:

  1. Increase hourly rates by $1 to $2 every three to six months as a retention tool;

  2. Retention and sign-on bonuses for professional and management-level positions;

  3. Revisit total rewards strategies for the post baby boomer generations.

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We are beginning to receive calls from current clients that have not utilized hiring incentives to attract new employees. For several years, our health care clients have offered sign-on bonuses for nurses and other technical positions where competition for talent has been and still is fierce. We are seeing new business sectors enter the realm of hiring incentives, inclusive of manufacturing, fast food, retail, assisted living facilities, non-profits and professional trade organizations like HVAC companies.

You can look at your local McDonalds’ restaurant marque and see the following recruitment enticement, “Up to $500 sign-on bonus and up to $15.00 per hour”. Some McDonalds will pay you $50 to interview with them. If you have management skills and experience, the sign-on bonus increases up to $3,000.

Some of our municipal clients are offering or considering sign-on bonuses to increase the number of police officer applicants. We had a discussion with a potential rural production company client about having to compete for trade labor applicants because a local HVAC business was offering a $2,000 sign-on bonus plus trade school tuition reimbursement.

It looks like the current sign-on bonus norm for health care nurse is now becoming a new offering for other business sector organizations. Will hiring incentives continue after post COVID – 19 stimulus unemployment pay incentives dry up or will they be short-lived once supply and demand for talent levels off and the unemployment rate returns to pre-COVID levels?

I’m hearing $200, now $300, and now $500! Going, Going and Gone for $500!!! You’re Hired!


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Severance Compensation/Benefits

We recently came across a great article written for Stephens Insurance, LLC clients by United Benefits Advisors, LLC. In the article, it mentioned that the global economy has suffered due to the COVID-19 pandemic and many businesses are struggling with declines in business. With the decline, the article goes on to say that businesses have had to be creative with furloughs, pay cuts or freezes on matching retirement contributions. Though these temporary changes may tide the company over, they mentioned that several companies have reduced their headcount which has pushed the decision as to whether parting employees should receive severance pay or not. It is important to note that they encouraged businesses to consider relevant laws, company policies and employee messaging as it relates to severance.

Their definition of Severance is defined as a benefits package given to departing employees after they leave an organization. Their benefits package included items like a lump sum payment or pay continuation for a designated period, paid COBRA (healthcare benefits) coverage, and/or an outplacement program.

We agree with the article stating that many companies have a severance policy in place that addresses the terms, conditions, and formulas used to determine the package. We also agree that the standard practice of two weeks of pay for every year employed is common. The article didn’t mention a cap, but we tend to see a cap of six months (26 weeks), unless the position(s) are further up the organizational ladder.

The article ends by stating that eliminating staff is a tough decision and the impact is felt with former employees as well as the remaining employees and the business being impacted also. The last sentence in the article is full of wisdom, “Kind and fair treatment go a long way in maintaining employee confidence.”

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Employer Costs for Employee Compensation

What is your organization’s minimum wage figure?

With the new Biden Administration, there is a renewed effort to increase the Federal minimum wage from $7.25 per hour to $15.00 per hour for all non-exempt hourly employees. Depending on what state your organization operates in, the state minimum may be lower or higher than the Federal minimum. In Georgia and Wyoming, employers can pay their employees $5.15 per hour unless the employers are subject to the Fair Labor Standards Act, then the employers must pay $7.25 per hour. There are currently 19 states using the Federal minimum of $7.25 as their state minimum wage per hour. That leaves 29 states (58%) that are paying their employees a minimum wage above the Federal minimum. Fifteen states are paying $11.00 per hour or higher and fourteen states are paying between $8.00 and $10.50 per hour. Washington, D.C. is paying $15.00 per hour as the highest non-state district followed by the State of Washington at $13.69 per hour. However, CA has a law for businesses with 26 or more employees where they must pay their employees starting at $14.00 per hour.

Many companies are moving towards the proposed $15 per hour figure to attract, grow and retain their employee base. However, they are seeking to accomplish these higher wage figure minimums over a period of years vs. over night. Many states have also passed phased in multi-year adjustments over a three to five year period of time. We agree with these approaches as they are good for business and the economy and hope our country and the other states can also head in this direction.

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