An Interview with an Expert on Wages in America

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Bill Ravenscroft, Adecco Staffing’s Senior Vice President of National Accounts, answers tough questions about wages in America, providing important insights to America’s employers.

Today, there’s a lot of chatter around pay—and rightfully so. Businesses are wondering how much to pay in order to attract and retain talent and maximize productivity, while talent (both hourly and salaried and temp and perm) is demanding more pay in order to feel appreciated and be happy. Both parties know a balance must be struck, but with a relatively healthy economy and low unemployment rate, that balance has tipped in the talent’s favor.

For businesses like yours, that means it’s time to put your workers’ wages under a microscope, make a judgment, and form a plan. Maybe your pay is adequate for your local market and compared to your national competition, or maybe it’s not. Perhaps your turnover percentage is too low to signal poor pay, or perhaps it’s not. Regardless, it’s key to form a plan that rectifies any compensation issues. The following Q&A session is sure to help you accomplish just that.

Q: Hi. Today, we’re speaking with Bill Ravenscroft, Senior Vice President of National Accounts with Adecco Staffing, about wages and retention in the U.S. Bill, when did the pay/wages conversation really start to pick up steam?

A: Right when the post-recession economy started to accelerate its recovery in 2015 and 2016. When you think about the unemployment rate and how it dropped below 5% nationally, it began to create wage pressure on employers and hiring companies. It was intense.

Q: What’s the number one question you receive from companies around wages?

A: “How much do I need to pay?”

Q: What do you tell them?

A: Clients are asking us, “Do we need to be on the top end of the pay spectrum? Should we lift just a little bit? How can we get the greatest access to the best candidates in the marketplace?” What we tell them, is it really depends on where you want to be in terms of return on investment. The higher they pay, relatively speaking, the better talent they’ll land, but we understand they must find the right balance. That’s exactly what we help them accomplish.

Q: What effect do wages have on job seekers?

A: Let’s pretend for a second that you’re shopping on Rodeo Drive. Think about what would entice you to enter a store. Wages have the same effect on job seekers as a beautiful dress or suit has on shoppers. Wages are your front door or window to the world; they’re how candidates identify with your company. They want to know if you’re a company who will pay them good wages.

Q: What effect do wages have on employee retention?

A: It has a profound effect. If you’re not paying at market, which is 50th percentile or better, you’re going to lose more people from the onboarding phase and on. There’s a direct correlation between wages and retention. In fact, we’ve conducted quite a bit of research on this. I can tell you that paying at the bottom of the scale (roughly $8.99 per hour) results in an 18% monthly turnover rate, while paying at the 75th percentile (roughly $12.48 per hour) results in a 10% monthly turnover rate—and reduces turnover-related costs significantly.

Q: You’ve worked with many companies on their wages. When companies have increased pay, how has that affected productivity?

A: It’s always had a clear effect. What we’re seeing is those clients who can better retain their workforce and quantify their productivity measurements—analytics around their production in a manufacturing and distribution environment—are having a higher level of productivity, and in turn, a much lower cost per unit. That’s the bottom-line revenue impact.

Q: Is there a tipping point on the pay spectrum, a percentile where companies can rest easy?

A: What we mentioned earlier, the 75th percentile. Companies can feel at least more comfortable there. But there does need to be a balance, and we understand not every company can pay near the top of the scale. A key element is how much talent Company ABC can access in their marketplace and figuring out the pay that allows them to capture and retain that talent. While benefits, flexibility, opportunity and skills development are important to associates, pay is without question the top job factor. In fact, that stat recently showed up in the survey attached to our 2018 U.S. Workforce Report.

Q: What’s the biggest hurdle that you—and really America’s businesses—face?

A: The fact that many businesses are trying to play catch up; they’ve been suppressed for so long. In general, wage growth hasn’t kept up with economic growth, and in some cases, company wages haven’t kept up with their competition. It’s a major investment for companies to catch up and attract talent in their industry—talent that’s now scarce and often looking for higher pay.

Q: What we’ve discussed so far might be more relevant to hourly wages; is it the same with salaried employees? Or is it different?

A: It’s much of the same. The difference is mainly that higher educated, salaried employees—the “professional” wage group—they’ve fared better the last few years. The demand and competition for their skill sets was more intense earlier. As a result, their wages have kept up with the economy, compared to hourly wages. Having said that, employers should audit their salaries and expect a more competitive professional labor market as well.

Q: When you discuss compensation with clients, where do you start?

A: We usually start with a market analysis. We need to find out what a company’s competitors are doing. We need to understand what your open jobs specifically require. And we need to know how much available talent resides within a certain radius.

Q: How can companies look at higher compensation in the grand scheme of cost savings? Paying more obviously costs more, but how can it reduce costs and increase profits in the long run?

A: Let me put my CFO hat on for a second. So all CFOs will ask, “What are we going to get in return?” Well, while it may cost more to pay more, reduced turnover means less hiring and training costs and higher productivity, which can more than offset the cost of increased pay, and makes up the return on investment. This may not be easy to quantify in every case, but we’re always prepared to answer it.

Q: As you look forward to late 2018, 2019 and beyond, what changes or trends do you see regarding wages?

A: We can say two things for certain: The job growth and wage growth—albeit it at a relatively slow pace—of 2018 isn’t going to let up anytime soon. In the very near future, 2019 looks to be a lot like 2018. What’s really important for companies to consider at this point in time is that the wages that they’re evaluating and the pay increases they’re considering are extending beyond the immediate future and into 2019. While it’s part of the cost of this pay lift—this candidate-driven labor market—companies should ensure they’re getting the return they need from better pay.

Q: Bill, thank you so much for being here with us today; we really appreciate it!

A: Thank you so much for the invite!

For additional information on pay, check out the following resources:

Salary Guide Center

Wages-Retention Calculator

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