Compensation strategies for 2022: What employers must do to attract and retain talent

The year 2022 is shaping up to be one of the most challenging in history for employers. The growing imbalance between the number of job openings and the number of candidates willing to fill them is now coupled with the highest inflation rate in four decades. Employers in all industries – from fast-food restaurants to tech giants – are facing increased pressure to raise salaries and hourly wages.

But that will not be enough for many companies. In the coming year, employers must match robust salaries with an equally appealing compensation package.

In this tight labor market, it is more important than ever that employers utilize a competitive and creative compensation strategy. To attract – and retain – top talent, companies must offer unique perks and add-ons on top of robust cash packages.

Most candidates will likely be weighing several competitive offers. The perks of a package may be what sways their decision one way or the other.

Here is what enlightened employers should be considering as part of their 2022 compensation strategy.

Non-cash benefits that matter to employees

Candidates want to feel valued and supported by their employers. Expect to see an increase in wellness benefits, corporate social responsibility initiatives, maternity/paternity support opportunities, and professional/personal growth opportunities.

Flexible work options

Technology has alleviated the need for five-day-a-week face-to-face interaction to complete work. Companies that offer little flexibility in remote work will continue to struggle to attract and retain talent. Candidates and current employees will choose the company with more workplace flexibility, forcing companies to make the change or drastically increase the compensation package.

Say goodbye to outlandish perks

Out-sized perks – such as housing, car, and country club allowances – will soon be a relic of the past. They are beginning to be phased out, especially at publicly held companies. When shareholders see perks like these, they begin to question where the money for them is coming from. Conversely, there are fewer questions raised when top-level executives are granted hefty compensations that are stock- or cash-related.

Performance-based compensation packages are in

Performance-based compensation will continue to grow in popularity. Traditional compensation bands consist of stock and equity. Equity can include grants of stock, stock options, or restricted stock units (RSU). The compensation of top executives is increasingly tied to achieving results across all industries. Technology companies, in particular, can leverage their high valuations to offer attractive equity packages.

Comp packages that appeal to investors are, as well

In the battle for talent, employers are also mindful of the need to structure compensation packages that sit well with investors, not just employees. Investors will support a compensation package for executives that is directly related to the performance of that company. For example, performance that drives up share price or valuation of the company is something investors are generally happy to reward. Publicly traded companies typically offer a greater percentage of their compensation in stock, since stock in a privately held company has less value – at least until the company goes public. RSUs can often represent a higher percentage of the compensation than cash.

Incentive programs that increase retention

Incentive programs can be based on both short-term and long-term performance goals. You can have cash and stock-based equity grants that will grant additional RSUs upon certain levels of achievement. They are forward-looking. For example, at the end of three years, if the executive achieves XYZ, then the shares that are granted will vest, so you have performance-based compensation. This is used not only as an incentive to reward people who perform above and beyond, but also to act as a retention bonus increasing the probability of keeping the best talent and top performers.

Creative comp packages at private companies

Because equity in a private company cannot be realized in terms of translatable cash until there is an event – such as an IPO, privately and publicly held companies differ in their compensation strategies. Private companies are increasingly realizing the need to find creative ways to compensate talent that does not put them at a disadvantage to publicly held employers. It’s common to see greater promises of equity in addition to higher cash compensation than in the past so that a private company can compete with a publicly held company for the best talent.

This still means a key employee needs to wait a set number of years for an exit, e.g., being acquired or going public, until they realize a “payoff.” The goal of the private company is to persuade an executive that her equity position and the value of the company will be equal to, or greater, in overall cash than she might have realized had she taken a position at a publicly held company. And in the meantime, she’ll be paid well.

The coming year promises to be the most competitive yet for employers. What worked in the past won’t cut it in this new, fiercely competitive environment. Generous salaries are but a start. Savvy employers must develop an aggressive compensation strategy that includes quality of life benefits, flexible work arrangements, and performance-based incentives, packaged to appeal to both candidates and investors. Those who fail to step up their game will find themselves on the losing side of the talent war.

Greg Selker is managing director and North American technology practice leader at Stanton Chase.