What is fair compensation?

Real Issues. Real Answers. Compensation

This month’s Real Issues. Real Answers. survey is a variation on a theme from our September issue, in which we asked about creating a “sticky” workplace where people wanted to come to work—and stay long term. This month, we dove a little deeper into the process of attracting top talent when a Minnesota dealer asked exactly how “competitive” wages need to be to get the right people in the door. Thanks to more than 100 dealers who completed our brief email survey, and a special tip of the hat to those who chose to comment and share their insights.

The reader who suggested this month’s question started out by stating that the starting pay in his market has climbed so much that he doesn’t even know what is fair anymore. And beyond that, what is fair not only for the employee, but also the employer?

First, we asked how many readers really know how their wages compare with similar companies in the market. It turns out, around half of those surveyed said that they indeed do pay market wages. Just short of 20% say they pay above market, while an equal number admitted that they don’t really know how their starting wages compare. Just 11% stated they are aware that they pay below market wages.

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Real Issues fair compensation

Part of the issue with paying fair wages to new hires is that what is fair to a new person may not be fair to a seasoned employee. Indeed, it’s hard to start a wet-behind-the-ears newbie at $16 an hour when that’s what you’re paying someone who has been in the role for five years. Some dealers, in an effort to keep salaries under wraps, have policies in place that prohibit staff members from sharing their salaries. However, fewer (46%) have such policies than the 54% who do not.

Finally, we asked those surveyed to weigh in on the exact question we received, which was:

“When it comes to happy, satisfied employees, it’s clear that money isn’t everything, but it is relevant—especially for attracting new hires. The problem is that the competitive starting wage in our market is far higher than we’re used to and can be dangerously close to what we’re paying established, loyal employees. I’d love to hear what other dealers have to say about what is ‘fair’ compensation (for both employer and employee) based on one’s level of experience, and how they’re navigating this increasingly fine line?”

Responses from lumberyards and specialty dealers

“Most of our seasoned employees understand that new hires are hired at higher pay that is closer to their pay level, but there are a lot of extra benefits that they receive that the new hires cannot get until they stay with us for a longer period. Our new hires, hourly rate is about $2 per hour less than some seasoned employees, but with our benefit program, the longer you stay the more you are taken care of.”

“Pay experienced employees for their value and performance. Pay new hires what the market dictates. If navigating this fine line is an issue, then establish a ‘no discuss’ policy about compensation.”

“We do pay more than most of our competitors, but we are in an area where just a short drive away there is a high-salaried market. We try to offset the disadvantage by offering good benefits, good hours, and more overtime. We also do not over-hire. We base our employee needs on how much productivity we get from our present employees. We explain to them that overtime and salary increases are benefits we can provide by being more productive, and by having just the right number of employees.”

“Employee retention is our bottom line. Great employees make a great business.”

“I wish we had a good answer. We are struggling with the same issues. Those on staff that are privy to wages are starting to feel disenfranchised, as they are not seeing these increases themselves.”

“We cannot compete with the multi-million and billion-dollar businesses when it comes to a benefits package. We are not large enough to have cheap insurance offered to us or us to our employees. Fair compensation would mean what drives the market and unfortunately it is what we have to pay sometimes to get someone to show up to work.”

“This is something we are dealing with right now. We are looking for help but will need to bring the wages up for our currently established employees. We talk about this every day and are in the process of making changes. I am very interested in how this will be answered by others who have figured this out.”

“With business so busy and the need for people so important, we have tried to not only increase wages but add some incentives as well. Attendance and being on time accrue some opportunities for employees as an example.”

“We have discovered that we must hire at what are the comparable union wages in order to attract new hires. If that pushes up against your longtime, loyal employees, then raise their wages up. A few extra dollars go a long way toward attracting and keeping the best people.”

“Work environment plays a very big part in this. You can get people to come to work for less if they need a job, however, to keep them you must have a family-friendly place for them to come to. Show them that you care about them and their families. We pay under what other retailers in our business pay and are fully staffed.”

“We have revised our starting wages across the organization with an emphasis on yard staff and drivers. When we increased starting wages, we adjusted the existing personnel proportionately.”

“The problem we are running into is our starting wage for someone with no experience is below what other industries in our area are paying. If we do get a promising younger employee in, once they realize the number of things they need to be ‘experts’ about they say ‘no way’ for the pay we can offer.”

“We raised our starting wages for warehouse and driver positions two years ago. This did create some issues as it pushed newer employees much closer to veteran employees who spent many years earning at entry level. In the end we looked at every employee and made decisions on their compensation based on their current contributions as well as their overall potential. We still have some work to do but the reality is everyone has to pay more for loyal and talented employees.”

“This has been a philosophy change impacting the way we go to market for labor. We had previously increased our base rate by $2/hour a year ago when we realized we were lagging. Given the competition for labor…any labor… we have now increased by another $3/ hour, sending an unprecedented wave of increases outside the employee’s annual review. Now we will be faced with an increment above the new rate at an employee’s review. It was this immediate increase, or we would lose operations employees to convenience stores, out-rating us by $2/hour. While this is all fine and good during a significant upturn in sales, when the dust settles, the largest income statement line will not only eat into our bottom line, but consume it.”

“The days of ‘Here’s the time clock, there’s a pair of gloves, drive that forklift, and don’t be late’ are long gone. Today’s workforce is cut from a different cloth, and it’s up to us, the employers, to find ways to attract, motivate, and retain them. A competitive wage is just the beginning. We have to offer a positive environment (hard-ass supervisors will not get the job done). Progressive benefits, flexible work schedules, plenty of time off, social responsibility. Shall I go on?”

“It’s impossible to navigate this problem to everyone’s satisfaction. Recently we had to raise all our driver salaries by $2 an hour in order to accommodate one new hire. I see more of this coming. Established, loyal employees with good benefits generally accept that there is some unfairness in the new hire situation, but only to a point.”

“If you don’t adjust your pay scale for existing team members who are producing, these loyal team members will no longer be so loyal. The adjustment has to be made for them first. Then look at what can be done for new hires. We recommend laying out a plan whereby the new hires come on at ‘market’ rates, but it’s understood by all that they will move up the scale to above market rates quickly if they hit certain production or performance metrics. Overpaying for new hires who are unproven is a bad bet most of the time, even in this labor market!”

“Everyone thinks they are worth more than their pay. What method is used to value each job in your business? Do you have a ‘step’ program to move the employee up as they learn and master their duties? Some people finish tasks faster than others, so they are more productive over the workday. Most employees now cannot separate themselves from their phones which cuts their productivity for the day. Use the steps to evaluate productivity and pay schedule. Be FAIR with yourself and the employee when you consider their competence. What skills and education levels do they bring? Can they think for themselves and solve problems? This is worth paying a higher price for a body to fill in a space. Offer a gas allowance per month as an incentive. Pay a bonus monthly or at Christmas (which is a big help for employees who cannot save money). Help them navigate the taxes, health insurance, and other deductions so they understand why their check is what it is. Help them use the skills they have and teach them those they do not have. Keep them challenged so they do not have time to think about why they are not rich and famous. And thank them for a job well done. Humans want and need to feel productive. Your challenge is to lead them to fulfill that need. Now what is your worth?”

“You need to re-evaluate everyone’s wage and not just the new hires, otherwise you will lose your existing employees (that are trained) to other companies that are willing to pay them more.”

“The lumber/hardware industry has a reputation of paying lower wages. With the changing times our industry has become more complex and there is a new need for knowledge. Technology needs to be embraced along with social media. What was done 10, 20, 30 years ago no longer applies and that goes for wages.”

“We have set rate parameters for all job categories and keep any new hire within the range. If we have to pay out of the range for new employees, we raise everyone within the category.”

“You have to pay for the talent you want to attract. In many cases newer associates make as much or more than current associates. It just means the new associates have a lot to prove.”

“Fast food particularly has driven up starting wages, along with all other entry-level workplaces. That makes our yard and cashier positions tougher to fill without making similar increases in starting pay. Then that accelerates starting pay in other positions up the chain creating a domino effect. Fortunately, our industry is robust in our geography, and we can afford those higher starting wages, and we can and have paid loyalty bonuses to non-management workers.”

“Great question! We are experiencing the same issues. Unfortunately, we are making adjustments as we bring new people on. If we want to maintain a happy workplace, we have no choice but to make this decision.”

“We just did an exercise in our market and found we needed to raise our starting wage around 9%. We changed the middle of the road associate 6% and the long term higher compensated associate 3% to try to be fair.”

“If starting wages are getting close to your established employee wages, then you are not paying enough. Raise your wages for your employees. Better wages lead to an increase in profit because you can attract top talent which leads to more sales at a higher margin.”

“We start our newcomers out at $11-$15/hour based on experience and ability (can they read a tape measure, drive a forklift, are they familiar with the products). They get benefits and a raise after sticking around 90 days. We strive to give all employees an annual raise of ~10% and have been fortunate enough to be able to for the last several years. I like to reward employees for their loyalty and an annual raise helps show them our appreciation as well as gives them something to work toward.”

“Our starting wage has had to increase roughly 15-20%. However, when hiring highly experienced people, we’ve had to take a look at what others in a similar position are being paid. In some cases, we’ve had to increase the pay of current employees as well. Although it’s against company policy to discuss wages, we know they do.”

“As an employer you have to be willing and able to go out into the market and pay a talented new hire a highly competitive wage from the start. You cannot always base what you are willing to pay a new employee based on what you are currently paying established employees.”

“We do pay benefits, however young people really don’t care about benefits and 401(k)s; they want more pay. Benefits don’t really matter to larger families either as they qualify for state health care. The insurance is so high for our company, it only works for a few employees. Local starting pay at McDonalds is now more than what our long-time loyal employees get per hour. Not sure how we can overcome this.”

“Quite simply, once we realized the market was going up, we issued a mid-year adjustment to seasoned employees to keep the gap appropriate between new and longer-term employees. Unfortunately, the overall payroll has gone up significantly, but our reduced hours of operation since COVID has cushioned the impact with reduced overtime and strictly enforced lunch breaks.”

“We actually faced this about two months ago. What we did was raise the starting pay across all positions. Of course, we were concerned about how longer tenured employees would feel about this. We held a meeting with leadership, and we communicated our concern in hiring and were transparent. Because we were transparent, they were all on board with our decisions.”

“Employee training and turnover is expensive. Most workers compensation claims happen with less experienced employees. Employee benefits (especially health insurance) are part of being ‘fair’ but are very expensive. Implementing a profit-sharing program that is goal-oriented and transparent is the best way we have found to arrive at a fair compensation program that aligns the interests of the employer and employee.”

“Research statewide salary data and make sure paying slightly higher than medium range and in the upper 75% of truck driver pay.”

“As I have only one employee at a time, it is difficult for me to discuss attracting new hires. What is fair to me will not necessarily be fair to another. I don’t believe that wages paid should be greater than the amount I make in a year.”

“Although money might not be the top motivating factor for everyone, no one works for free. Work environment can play a huge factor in employee loyalty and spreading a good reputation as a great place to work. I’d ask everyone to reflect on how they foster a positive, secure, family environment on a daily basis. What are the little extra things you personally can say and do to make an employee feel valuable, heard, and important?”

“COVID-19 has actually been kind to my business. Sales are up, and higher prices (with same margins) means more profit. So, we raised wages top to bottom, and shared some PPP funds as a thanks for working so hard.”

“We found that wage inflation was high for the entry level positions and not at all an issue as we moved up the range. This has resulted in manageable compression of the first two tiers of our compensation layers.”

“We made the decision several years ago that our employees deserved a fair wage. We believe that anyone working 40 hours a week should be above the poverty level. While it has resulted in higher employee related expenses, our reduced turnover and increased productivity (and reduced inherent costs of hiring and loss of productivity resulting from training, etc.) has mostly offset the increased costs. At the same time, if base compensation for a new hire in X position has increased, we provide incremental increases to all people in X position with the caveat that X position is never worth more than Y to us no matter how experienced someone is. It is a hard discussion, but we have it regularly with everyone.”

Responses from wholesale distributors, manufacturers, and service providers

“I believe it’s a good idea to publish a pay range for every job in the company and when the employee is ‘reviewed,’ the supervisor tells that employee what he/she must accomplish in measurable terms to qualify for a raise. This allows employees to know how much they can earn without receiving a promotion. Each year the range moves up or down, but typically up and the new range is communicated to each employee in each job classification. If incentive pay is a part of your compensation package, you can easily incorporate the incentive pay into this system.”

“This is the basis of what America was founded upon, the law of supply and demand and each individual market’s productivity versus margin, volume, and competition. Let the best company win, person win, and market win. It will level out, and we must realize that the current market is not a normal market but a transitional one.”

“Staying competitive on pay is critical to attracting the caliber of people we all want and need. However, analyzing the financial impact of a starting pay increase should always include the subsequent pay increases for current employees. No one likes to feel treated like the latest cell phone promotion. Take care of your good employees or you’ll eventually need a lot more of those new hires.”

“There is no question that we are in a time of wage inflation. The challenge is, how long will this last and how do we not set an unrealistic, long term pay scale. Our stance is that we know that inflation is at or around 5.5% and we have been quick to add this to our established workforce. For new hires, we are raising our base rate for no experience and paying experienced people accordingly. We include a signing bonus, referral bonus and retention bonus when applicable.”

“Trust me, your current, loyal employees are being shopped. Recruiters and competitors both are reaching out to them. In fact, many do so on your job sites. The fact that your starting wage isn’t competitive is a sure sign that your loyal employees are being underpaid (at least in their eyes). If your current employees are essential, you better raise their pay rate before they walk. If that cost, along with new hire costs, are too much of a financial burden, then strategies to raise prices, provide more offerings, or do more with less is essential.”

“Perhaps offering a yearly bonus based upon years of service can offset the small wage difference. Anything done will impact your bottom line, so focus on any way possible to increase profitability. Efficiencies, purchasing, sales margin increases where possible—whatever it takes to put yourself in the position to outperform your competition.”

“It might not be economically viable, but to raise the level of all employees a similar percentage would be fair and prevent the inevitable future of losing employees because you didn’t keep up with the competitive wage, or just because of the salty taste from being nudged closer to an entry level employee.”

“You need to pay based upon an annual bonus, and tie that to measurable productivity. In that manner, you’ll get productive, motivated employees instead of a bunch of ‘salary-suckers.’”

“In my opinion, in these times the length of employment is not as important as to what the new hire can bring to the table. You need to be willing to pay for those top m10-percenters if you want to keep the best. With that said, you must also have an evaluation procedure and accountability with good benchmarks.”

“Wages are only part of the picture. Developing a culture that attracts new people is a very important long-term requirement for any successful business.”

“‘Money isn’t everything’ when companies pay below scale. New hires at this time are starting at 7-10% higher than existing associates. Company policy will only change once an organization sees turnover and/or their HR team influences C-suite level folks of the need to move on compensation lift.”

“We reach out to industry friends and compare wages at least once a year. We also reach out to known union yards and make sure that our base wages are slightly over union scale, with better benefits than a union has. 401(k) matching and our ESOP put us in a league of our own.”

“I will be glad to hear the responses to this as it is an issue here in our operation. As well as signing bonuses!”

Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.

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