The Just-Pay-'Em Approach to Hiring

Facing continued labor shortages, some companies are focusing on one central incentive: higher pay. Does it work?

The firm is looking for ways to swiftly fill a string of vacant openings, both high and mid level. It’s also concerned about finding the right talent for some special roles and retaining workers who don’t mind and are eager to put in long hours to get ahead. Suddenly, the company’s C-suite comes up with the answer: Hike up compensation. Dramatically.

In a move that pooh-poohs the notion that other job benefits matter, several key banking firms and some multinationals in other sectors have returned to embracing pay as the key, if only, incentive in today’s highly competitive job market. Experts say the trend started during the pandemic in the retail and food sector but most recently gained attention when many of the major investment banks started raising pay for junior bankers by as much as 30%, hoping to counter concerns about burnout from jobs with long workweeks. “The focus on salary is now part of companies’ thinking,” says Benjamin Frost, a solutions architect for product businesses at Korn Ferry, who warns the practice won’t ultimately sustain itself.

Enticing employees with greenbacks went out of vogue a few years ago, in favor of holistic well-being efforts from human resources, around the same time that “self-care” entered the mainstream lexicon. And to be sure, many firms are aggressively recruiting by offering wide-ranging nonmonetary perks and benefits, from more job flexibility to longer vacation times to improved mental healthcare and job training. For younger employees (millennials), experts say attaching cash to a role is only effective if the job also provides some combination of mission, purpose, or impact. Generation X and baby boomers are more likely to be swayed by more money and less personal fulfillment.

This “just pay ’em” approach, if controlled, is usually not a financial hardship for most firms. Industries from manufacturing to restaurants consistently spend under 30% of their revenues on payroll. Korn Ferry surveys show that many employers, especially in service industries, are boosting pay. McDonald’s, for example, recently raised salaries an average of 10%.

This is good business, particularly in professional services such as banking, law, and consulting, says Chad Astmann, cohead of global investment management for Korn Ferry. “When people are your product, you have no real choice but to create the most attractive employment opportunity, and that includes compensation,” he says. Paying up is also a winning strategy in business, finance, and other highly competitive and demanding industries, which (surprise!) tend to attract financially motivated humans. “Compensation becomes the benchmarking motivator, and quality of life is less important than well-being,” says Astmann.

Tom McMullen, senior client partner in Korn Ferry’s Total Rewards group, cautions that high compensation won’t necessarily equate with highest-quality work. He offers an adage of psychologist Frederick Herzberg: If you want people to do a good job, give them a good job to do. McMullen says to contemplate what besides money would improve the role. Is it monotonous? Are the hours too long? Can the job be reconstructed to broaden autonomy or spread workloads among multiple people? And, of course, how can a pile of money be added to the equation? “It’s finding that sweet spot where you’re offering an amount to get talent through the door, but not tipping the whole financial operating model off-kilter,” says McMullen.

Know that the pay ’em approach will carry you through the next year or two, not the next decade, emphasizes Frost. “A high salary might get people applying and entice people to stay in the short term, though I don’t think it’s the answer in the medium or long term.” In these pandemic years of short decision-making horizons, that’s plenty of time.