Talent war pushes employers toward faster, more frequent financial rewards

As the U.S. labor market continued to tighten over the past year, employers generally responded by raising wages. According to data from the U.S. Bureau of Labor Statistics (BLS), between February 2021 and February 2022, the average hourly wage for private nonfarm workers rose from $30.04 to $31.58, an increase of about 5% year over year. However, higher pay does not tell the whole story. Over the same period, real hourly wages actually fell by 2.6%, meaning inflation has offset workers' nominal wage gains.

Despite this, many executives remain reluctant to push wages higher, fearing that talent shortages may ease as workers return to the labor market. CFO Dive reports that this caution is not universal, and some employers have broken out of the traditional annual pay adjustment framework. Deloitte revealed in a recent statement that it conducted additional compensation market analyses mid-way through its annual pay cycle, effectively providing mid-year raises for many employees at levels "beyond the usual adjustments within the annual cycle."

From exception to norm

Tony Guadagni, senior research director for HR at Gartner, said organizations are increasingly considering more frequent pay raise programs. "Just recently, this trend has become more pronounced," he told HR Dive. In the past, employers might decide to give certain employees multiple raises during the calendar year, "but that was more exception-based," noted Lesli Jennings, senior director of talent and rewards consulting at Willis Towers Watson. Top performers in particular were more likely to receive more frequent raises.

Now, the job market is forcing employers to change that mindset. "Given current market conditions, we are seeing these types of raises occur more frequently than in the past," Jennings said. "We need to both attract the right talent and retain existing employees." Guadagni said short-term incentives are more common than base salary increases, with employers especially favoring immediate bonuses. These small, one-time rewards allow employers to adjust flexibly as economic conditions change, without locking in long-term market adjustment commitments.

Jeanniey Walden, chief innovation and marketing officer at DailyPay, an earned wage access provider, believes organizations may see base salary increases as having reached their limits in the current market, making immediate bonuses an attractive alternative. Most raises during the pandemic failed to keep pace with inflation. "At that point, I think many companies began to view money as a driver, not just compensation." In other words, other financial incentives can fill the gap workers face. Walden cited examples such as transportation subsidies (e.g., gas allowances, subway fare subsidies) that help workers save on commuting costs, and even company-provided lunches that can save workers a few dollars a day.

Guadagni suggested that if budgets are tight, employers can still consider establishing "off-cycle" raise processes—adjustments outside the regular pay raise schedule—so managers know how to respond. This process is highly beneficial when managers believe a raise is necessary to prevent the loss of key talent.

A rapidly changing market

When asked which positions or job types are most likely to receive more frequent raises, Guadagni said that while he lacks precise data, employers are likely offering bonuses in areas with the highest turnover rates. The frenetic pace of the current market also presents another challenge: organizations struggle to keep compensation benchmarks up to date. "They know they need to update wages, but they don't know by how much," Guadagni said.

Inflation has intensified these considerations. Organizations may decide to make cost-of-living adjustments (COLA) to ensure workers' pay keeps up with prices. But a Gartner webinar poll in February, covering more than 300 executives, showed that only 23% of organizations would provide a COLA of 3% or more, while 41% planned no adjustment at all.

Even if organizations opt for smaller one-time bonuses rather than base salary increases, this strategy adds to the workload of compensation managers. "If I'm a compensation manager processing payroll weekly, and suddenly someone asks me to handle bonuses, I might quit or cry—one of the two," Walden said. "It makes my job harder." Jennings likewise acknowledged that adding extra steps to the regular compensation process can be cumbersome, but she noted that more frequent periodic raise mechanisms, such as semi-annual reviews, could be established.

It's not just about pay

Some sources lament the focus on compensation that the pandemic has imposed on organizations. Walden described the current situation as "a direct wage war," using a shopping mall as an example: if retailers like Target announce higher minimum hourly wages, neighboring stores and fast-food outlets must follow suit or risk losing workers. "The pandemic has hurt many companies and industries because it accelerated and amplified the focus on pay amounts rather than the full compensation and benefits package," Walden said.

Although other compensation levers include bonuses, earned wage access, and other financial rewards, sources also noted that workers are not attracted solely by high pay. Guadagni said organizations need to focus on the intrinsic value they can offer for certain positions and professionals that competitors cannot. "Pay is part of it, but not all of it," he added.

Jennings mentioned the example of career path modeling, including how organizations group and describe different jobs. She suggested that employers should consider developing communication strategies to talk about career development in a precise and relatable way. Communication about promotion paths for people in different positions helps provide clearer understanding for both employees and employers. "As an employee, I can hear these terms and vocabulary and understand where my current job sits in the hierarchy," Jennings said. "But what I'm really interested in is another job. If I can see the options that exist within the organization, I'm better equipped to assess and understand the gap between where I am now and where I want to be."

Competing priorities may hinder the establishment of such structures, Jennings added, but time and capability are also constraints. Most organizations have the ability to do career modeling, but it requires managers and leaders to be comfortable having one-on-one conversations with employees about the future. "For some organizations, talking transparently about jobs and careers is a new capability," Jennings said.

Other opportunity areas also exist. Guadagni observed that some clients are doubling down on communicating their organizational mission and "why we are a great place to work." Jennings reiterated that clearer, more engaging communication around certain organizational changes is also a focus. Additionally, there are total rewards areas that supplement compensation, such as flexibility, remote or hybrid work, and greater autonomy over work schedules. "I think everyone is doubling down on these benefits, the employee value proposition, and what makes us different, and having managers talk about those," Guadagni said. Jennings emphasized the importance of wellness programs and similar benefits that enhance the employee experience.

In other areas, employers are also focusing on monetary incentives like stock vesting. Last month, CFO Dive reported on the trend of organizations allowing employees to access equity value earlier, a strategy known as "front-loaded vesting." Companies such as Amazon, Apple, and Google are reportedly adopting this approach. These additional benefits do not mean employers can ignore compensation entirely. "In my view, compensation must be part of the equation," Guadagni said. "If you're not paying attention to pay while everyone else is, you're likely to lose the talent war."