Since the reduction of the corporate tax rate from 35 to 21 percent, 64 banks nationwide have raised their minimum salaries to $15 per hour or given bonuses that range from $500-1,500, or both.
This number has increased by 50 percent since Jan. 1. Some have increased their 401(k) matching contributions. Some have made significant donations to nonprofit organizations in their communities.
Companies in the market at-large with whom financial institutions often compete for frontline talent are increasing their starting wage. For example, Target has announced it will raise its salaries to $15 per hour by 2020. Apple has announced it will reinvest $350 billion and add 20,000 jobs in the U.S. over the next five years. Companies with freed up capital are investing in the war for talent and in their communities.
All of this has caused concern for community banks and credit unions as they wrestle with whether they should follow suit and raise pay to $15 an hour. Here are our suggestions:
- Know the market rate for wages. This requires examining external data and internal equity by a professional who is not bound to internal politics and long-term relationships between incumbents. You may need a midpoint that is 10 percent above the market as a competitive advantage.
- Have a compensation philosophy and salary administration guidelines. Audit against those standards for consistency. If the next administration reduces the tax advantage, you would not need a knee-jerk reaction to adjust.
- Don’t overpay for inexperienced new hires. We strongly recommend new employees with little or no background receive a starting salary of approximately 85 percent of the midpoint for most jobs and 90 percent of midpoint for “hot jobs.”
- Develop a salary increase process that ensures that pay levels are getting to their midpoint in a reasonable period of time. Non-exempt employees with three years of experience in their job would have a pay level at 100 percent of the midpoint. Exempt employees with five years of experience in their job would get to their midpoint in five years. (This is where most salary administration programs fall down.)
- Pay for Performance. The average salary increase differential by performance is 2 percent. If the difference between a high performer and an average performer is 1 percent, you are not differentiating the salary increase significantly enough to “pay for performance.”
When I review the pay levels of clients that have contacted us about an appropriate response to the market, it is easily to determine they were inconsistently applying their own salary administration guidelines. This should have been an obvious step even before the tax cut incented companies to offer more competitive pay.
If your competitive advantage is your people, then the war for talent is growing more heated. Have a well thought out compensation plan. Get out of the guessing game. Live up to your plan consistently. Update your salary ranges annually. Reevaluate and commit to your compensation strategies.