In 2022, the labor market was, in a word, volatile. A confluence of factors — ongoing inflation, talk of a recession, an exodus of baby boomers from the workforce and lingering pandemic-related adjustments, to name a few — all contributed to uncertainty on which workers capitalized by seeking new roles and boosted compensation.
Many of them succeeded. A 2022 study shows that individuals who moved to new companies during this time got an average pay increase of around 10%, while those who stayed in their existing roles saw their pay decrease by 2%. As more workers recognized the benefits of seeking new opportunities, new-hire compensation packages continued to grow, feeding the cycle further and encouraging more turnover.
In this context, it’s not surprising that many leaders got pulled onto the carousel of rising new-hire wages. However, success in the new year will hinge upon getting off the ride.
Refocusing on Retention
While offering competitive compensation is integral to winning a war for new talent, it has often come at the expense of tenured employees. In their haste to bring in talent, many businesses neglected raises and promotions for existing staff. Over time, it’s a losing strategy — especially as pay transparency becomes the norm and operations costs continue to rise.
In 2023, the key to maintaining a robust and skilled workforce will be a focus on keeping talent around rather than finding new candidates. Even with the hiring boom slowing down, quality candidates are able to find work elsewhere. Failing to keep existing staff’s compensation on-par with new-hire offers could mean losing a company’s best and brightest to opportunities that pay what they’re worth in today’s market.
The above is especially prescient when considered alongside the rapid pace at which baby boomers are retiring. Magnit’s workforce data shows that the number of daily retirees has increased by 8% since 2019. That could have significant effects on organizations’ futures. With experience often comes leadership positions, which means businesses losing baby boomers are often losing executives at a rapid clip.
This demographic shift lays bare the importance of retaining experienced employees from younger generations and supporting their growth. Emerging workers need more training than those in the past, and they thrive with cross-training to learn different roles before settling into their career path. Furthermore, this shift in workforce demographic also lowers the average age in most organizations, impacting the benefits and total rewards that will best meet the needs of workers. Businesses that show employees they are valued and curate leaders from their own ranks will be positioned for stability.
A Renewed Focus on Skills
Of course, hiring will not cease altogether in the new year. Even those companies that focus their efforts on retention will inevitably have roles to fill. That’s where the last piece of the puzzle—skills-based hiring—comes in. Our data shows that, contrary to the oft-repeated claim that there aren’t enough skilled workers to meet demand, there are plenty of experienced candidates looking for work.
Two trends are contributing to this widespread illusion. The first is the misalignment of skills with available titles and compensation. The labor market has changed significantly in recent years, with more and more employees seeking contract-based and contingent arrangements. Still more are pursuing flexible or remote roles or seeking to switch from one industry to another. Then, there is the fact that most people looking for new positions are still employed. In both cases, there is a solution, and it’s an adjustment to the way recruiters conduct their work.
Rather than searching for candidates that have held specific titles, recruiters will benefit from outlining candidate profiles that focus more on skills and relevant responsibilities than tenure or title histories. Then, they need to use talent intelligence and pay rate insights to ensure they’re offering competitive compensation to both their current staff and new hires.
It may be tempting to blame external forces for hiring woes, but it’s a fruitless endeavor. Even if the problem is external, the solution lies in a business’s approach to the solution. By understanding the above factors, recruiters will be well on their way to finding those solutions and evolving their practices alongside their workforce.