What will make you stay?
next issue no. 9: On the horizon
It is no secret that the labor market is historically tight right now. Despite higher inflation, the U.S. equity market down year to date and growing questions about the U.S. economy is heading toward a recession, the employment market remains one of the brightest stories and best pandemic recovery narratives around…for employees.
The unemployment rate at the end of June sat at 3.6%, back to the level it was at pre-pandemic, and the second lowest it has ever been since 1953. We’ve also seen a broad decline in the labor force participation rate (the percentage of the population working or seeking work, which has continued to decline since its peak in 2000 and currently sits around 62%).20 These two factors combined lead to a strong market for employees, as the overall pool of labor is reduced, while the fluctuating pool of unemployed labor is also at historically tight levels.
There’s also a reason why the term “Great Resignation” was coined; we’ve seen historic levels of quits versus layoffs, as employees en masse decided that they wanted better wages, better culture, better work-life balance and benefits, more flexible remote work and better Covid safety protocols. The rate of people quitting their jobs had been climbing steadily since 2012, but after an initial pandemic-related collapse in quits and spike in layoffs, we now see nearly three times as many people quit their jobs each month than get laid off. The latest data shows that in May 2022 4.2 million people voluntarily left, while just 1.4 million were laid off.21 With employers desperate for talent, and employees a hot commodity, it is no surprise that people are leaving for better pastures.
Why switch jobs?
Higher salaries and better benefits are typical rewards for employees switching jobs, but this has become more pronounced over the last couple of years. For example, in June 2022 job-stayers on average received a 4.7% wage raise, compared to 6.4% for a job switcher — a 36% increase in the wage raise for the job switcher.22 In times of elevated inflation, it would appear that switching jobs might be one of the only ways to mitigate the increasing cost of living. Younger cohorts are acutely aware of this, according to a Conference Board survey, with 72% of millennials concerned about their pay keeping up with inflation. However, salary alone isn’t driving job dissatisfaction.
Across all employees, culture, career advancement and the ability to “work from anywhere,” in addition to better pay, are at the top of overall reasons why workers left, or intend to leave, their current employer.
Interestingly, Generation Z (ages 18–25) workers show a number of characteristics that separate them from older cohorts of employees, which is well worth considering since they are rapidly entering the workforce highly educated and very diverse, and becoming an increasingly influential in workplace dynamics and the economy.
Overall these employees are less satisfied with their jobs and twice as likely as Baby Boomers (ages 58–76) to be concerned that technology will replace their roles in the next three years. They are also more enthusiastic about remote working, and more likely to ask for a raise or promotion, and be willing to leave their jobs if they don’t get their demands met.23
Appreciating the benefits of benefits
Since the pandemic, half of employees say they are more concerned about retiring when they want; however, 48% are more appreciative of their retirement plan and 57% are more appreciative of their healthcare plans. Millennials in particularare more vocal as to what they want from employers, including more holistic benefit considerations. 72% of employees see a company contribution to a retirement plan as a top priority, but it was closely followed by workplace flexibility, with millennials specifically prioritizing paid time off and workplace flexibility.24
We’ve seen a shift in attitude from employers too in both strategic and implementation of benefits. Since 2000, benefits have slowly increased as a percent of employees’ total compensation (with the other part being salary). This has risen from 27% in 2000 to 31% in 2022. In the not-for-profit sector, benefits usually take up a larger proportion of total compensation than in the for-profit sector.25
Data breaches are a growing liability for any organization that maintains personal data, and financial data of employees and retirement systems have to have the highest security around them. The avoidance of phishing attacks and cyberattacks is a top priority that is best tackled through ongoing educational training and guidance, with best practices being updated regularly.
Retirement plans are a critical component of this. Over the past few years, plan sponsors have consistently said that the primary reason they offer a retirement plan to employees is because it’s the right thing to do. Over the last two years, we saw a large leveling occur with plan sponsors increasingly saying that their retirement plans are a tool to help attract and retain talent. But offering the benefits isn’t enough.
You can design the best benefits package, but you still need uptake: design isn't the objective alone. It’s often adoption and perhaps even instilling a sense of loyalty toward the employer and security for the employee. So thoughtful, deliberate and actionable communications are critical.
Tailoring communication around benefits and having a comprehensive awareness of how different employees have different demands and expectations for benefits and time off can be an important way for employers to attract and retain younger talent.
The basics have to remain front and center of any comprehensive benefits package.
Financial literacy has to be targeted so that younger employees have the same breadth of knowledge as their more senior cohorts. Without structured and thorough knowledge of retirement planning being part of a comprehensive benefits introduction at a relatively early stage of a career, it is possible that younger employees will make mistakes, not understand the benefits of saving as early as they can, and miss out on potential benefits available to them. Taking age-appropriate risk/return calculations into retirement planning can allow for more aggressive growth at the earliest stages of a career, when retirement is still decades away. The education should speak to the unique needs of the younger generations, including time they may plan to take away from the workforce, how switching between jobs can impact retirement savings, and structural shifts in retirement planning that are occurring between generations. These shifts can include the decline of defined benefit programs, changes to Social Security and initial higher student debt burdens.
Help employees gain financial confidence
- Encourage employees to create an emergency fund
- Offer services to help employees and their families with forgiveness for student loan debt
- Remind employees market volatility levels out over time
- Offer a guaranteed lifetime income option
- Provide 24/7 support to a divers, on-the-go employee population with automatic enrollment and contribution increases for retirement plan
- Consider innovative ways of assisting with employees: Loans from retirement plans, selling back vacation days, everyday payroll, etc.
- Offer retirement advice and financial wellness programs to reduce stress and improve work productivity
Structuring benefits and communication around them remains a key consideration for the younger generation, an increasingly digital-first and remote-working cohort of the workforce. Therefore, ensuring that digital information on benefits, robust 24/7 web access and the ability to ask questions and get support without having to meet a representative from HR in person has to be paramount. Directly coupled with this are concerns around cybersecurity. Data breaches are a growing liability for any organization that maintains personal data, and financial data of employees and retirement systems have to have the highest security around them. The avoidance of phishing attacks and cyberattacks is a top priority that is best tackled through ongoing educational training and guidance, with best practices being updated regularly.
We would also recommend that employers work to simplify their retirement plan investment options. Reducing the number of available investments can make it less intimidating for participants to choose by reducing confusion and complexity in their planning.
In this issue
20 U.S. Bureau of Labor Statistics. 8 Jul 2022.
21 U.S. Bureau of Labor Statistics. 19 Jul 2022.
22 Atlanta Fed wage growth tracker. 21 July 2022.
23 PwC Global Workforce Hopes and Fears Survey 2022.
24 Conference Board. 28 Feb 2022.
25 U.S. Bureau of Labor Statistics. 16 Jun 2022.
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