Are You Paying Enough to Compete for Employees?
by Marty Kirshner, CPA, MSA & Joe Ciccarello, CPA, MST, Gray, Gray & Gray, LLP
Many companies plan to raise wages by more than 6% this year
The energy industry has not escaped the nationwide labor crunch. A common concern we are hearing from our clients is they are having difficulty in hiring competent and reliable people. Blame for the dearth of available help has been placed on everything from pandemic-prompted handouts and inflation to the “Great Resignation” and a generation gap. Whatever the root of the problem, the solution will come from the people doing the hiring – the owners and managers of energy companies that are desperate to fill open positions.
Time for a Reality Check on Wages
Compounding rising fuel costs and the impact of inflation on practically every other cost your company incurs, the tight labor market is forcing all businesses to reevaluate their pay structure. The modest wage increases employers have managed to get by with for the past decade are no longer sufficient to compete for workers.
Over the past decade, inflation lingered between 1% and 2% while pay raises increased between 2% and 3%. The annual Gray, Gray & Gray Energy and Propane Industry Surveys verify these estimates, with hourly wages rising across almost all job titles.
But today, the declining value of the dollar and the record-setting rate of inflation have changed employees’ expectations around compensation. According to data from the Federal Reserve Bank of New York, in March 2021, the mean annual salary job seekers expected from their job offers was $60,610, up from $53,676 in March 2020, an increase of nearly 13%.
A survey conducted by compensation consultant Pearl Meyer showed that half of responding companies are revising their payroll budgets for 2022 to include higher wage increases than they originally forecasted. These businesses say they are increasing pay by an average of 5.2%, and 25% of them plan to raise wages by more than 6%.
Ask yourself this question: How much is a good employee worth to you? What are the true costs of the hourly rate you pay versus the profit generated? What can this employee bring to your business? Will they generate enough money to more than make up for their annual salary? If you find that they’re incredibly beneficial, then perhaps you will see the value in paying more than the market average.
Less Expensive to Keep Them
A major part of the employment problem is the loss of existing workers. The pandemic pushed open the exit door for many people who either retired early or went looking for better opportunities. The first part of the labor solution is to curtail this outflow of talent and experience. Here are four steps to take to help retain your people:
- Review and reevaluate your payroll structure;
- Pay your “A” team well;
- Make sure benefits are “better than competitive”;
- Train your best people for future leadership roles.
If you think you can get away with letting an experienced employee leave without trying to raise their compensation to compete with a better offer, consider the real cost of replacement. Between time spent managing the search process, paying for “help wanted” ads, the cost of background checks, time and money invested in training, and possibly writing a check for a signing bonus, the typical cost for adding a new employee in 2022 is estimated to be nearly $17,000. That does not include the productivity lost when an experienced employee leaves.
You Get What You Pay For
Paying wages higher than the average marketplace rate can make it easier to attract more talented and capable people who are motivated, enthusiastic, and more likely to stay with your company for a longer period.
Marty Kirshner and Joe Ciccarello are Partners in the Energy Practice Group at Gray, Gray & Gray, LLP, a business consulting and accounting firm that serves the heating fuel industry. They can be reached at 781-407-0300 or firstname.lastname@example.org.