The SESCO Report – December 2021
The Great Resignation of 2021
The Great Resignation of 2021 is the biggest problem for US employers right now. More and more employees are quitting their job in favor of jobs that come with better compensation and benefits, work/life balance and more meaningful work. It is obvious that the Pandemic brought many changes to the labor market, and so employers are in the midst of a major labor crisis. More than 4.3 million workers quit their job in August 2021 alone – a historical number – according to the Department of Labor.
Employers are left wondering what are the reasons behind the Great Resignation? How do we curtail it? The answers are more than simple and require a deep dive into the organization and commitment by leadership to addressing the challenges.
Why are Employees Leaving?
Many employees, across various generations, are not satisfied with their current employer and the positions they hold within the organization. Many are searching for better opportunities that promise a slew of benefits to upgrade their lifestyle. Consider the following statistics:
Employees between 30 and 45 years old have had the greatest increase in resignation rates, with an average increase of more than 20% between 2020 and 2021. While turnover is typically highest among younger employees, a recent study found that over the last year, resignations actually decreased for workers in the 20 to 25 age range (likely due to a combination of their greater financial uncertainty and reduced demand for entry-level workers). Interestingly, resignation rates also fell for those in the 60 to 70 age group, while employees in the 25 to 30 and 45+ age groups experienced slightly higher resignation rates than in 2020 (but not as significant an increase as that of the 30-45 group).
There are a few factors that can help to explain why the increase in resignations has been largely driven by these mid-level employees. First, it’s possible that the shift to remote work has led employers to feel that hiring people with little experience would be riskier than usual, since new employees won’t have the benefit of in-person training and guidance. This would create greater demand for mid-career employees, thus giving them greater leverage in securing new positions.
It’s also possible that many of these mid-level employees may have delayed transitioning out of their roles due to the uncertainty caused by the pandemic, meaning that the boost we’ve seen over the last several months could be the result of more than a year’s worth of pent-up resignations.
And of course, many of these employees may have simply reached a breaking point after months and months of poor organizational culture, lack of appreciation from leadership, high workloads or burnout, uncompetitive compensation practices or lack of performance/retention bonuses, hiring freezes, and other pressures, causing them to rethink their work and life balance.
For numerous reasons, it is paramount that leadership partner with human resources (HR) professionals to take extra steps to mitigate employee turnover. Turnover presents many direct costs to a business, from hiring to training. These costs can add up to $4,000 or $5,000, but for executives, that number increases significantly. In aggregate, employee turnover reportedly cost businesses over $600 billion in recent years. There are also many intangible negative impacts, such as reputational damage and lower morale due to staffing shortages.
So, where do employers need to start?
1. Challenge Compensation Practices
Pay is often the first component, but it is certainly not the last, and often not the most important. It is not always possible for every business (particularly small and midsize businesses) to compete on salary for every position.
As inflation continues, what impact does it have on employee wages? Currently, consumer price inflation is 5.4%,” with high inflation rates are expected to last through the rest of the year; the United States Office of Management and Budget (OMB) recently changed its inflation outlook forecast for Q4 2021 — from 2.1% (the forecast in May) to 4.8%. Generally, you consider giving your employees a raise because of tenure or performance, but inflation can also play a role.
Inflation has a direct impact on the purchasing power of the dollar which, in turn, has a direct impact on the value of your employees’ compensation packages. For many, receiving a typical three (3) percent COLA adjustment is actually taking a pay cut in the current year. When you combine the declined value of the dollar with the labor shortages employers are currently experiencing (and the corresponding demand for workers), it’s clear that employees’ expectations around compensation are changing. A few tips:
Competitor Compensation: If you want to attract and retain top talent, you need to pay them a competitive wage. Doing competitive research (for example, a customized SESCO market wage and benefit survey) can give you insights into how much the market is paying (and how much the market is increasing wages during this time of increased inflation), which can help employers adjust compensation plans accordingly.
Budget: Employers who plan to increase employee compensation need to find that money somewhere, which means looking in the budget to determine how to account for increased labor costs. Can the organization increase the price of your products or services? Are there areas where spending cut backs can occur to make room in the budget for increased wages? Examine this closely to see what makes the most sense for your organization and your employees.
Inflation Projections: As mentioned, the Office of Management and Budget expects inflation to return to more manageable levels in 2022, which could impact how and how much the organization plans to increase employee compensation. For instance, if leadership feels confident that inflation will return to normal levels over the next few months, you may consider giving employee bonuses versus salary increases to tide over employees until things stabilize. On the other hand, if leadership believes that inflation is here to stay through 2022 and beyond, increasing employee wages for the long term might feel like the better solution.
2. Revisit and Realign Company Culture
By putting company culture first, organizations can hopefully ward off the worst of “The Great Resignation” by focusing on employees’ experiences at work. People choose to join a company for various reasons, but organizational culture is why people ultimately decide to stay. Consider:
Conduct an Opinion Survey: Engagement starts with understanding your employees. Done right, surveys can uncover critical insights about where your employees are experiencing the most friction. It’s good to note that not all employees can be “saved”; not every pain point can be resolved quickly enough to make a difference in a given employee’s decision to leave or stay.
That’s precisely why conducting a survey can be so helpful for weathering “The Great Resignation.” By collecting and analyzing feedback from those who have left during the pandemic, you can pinpoint why people are leaving and take action on the areas (e.g., remote work options) that will drive the greatest impact. SESCO’s Employee Opinion Survey tools provide statistically significant and valid results for addressing employee engagement, morale, culture, communication etc. areas needing to be addressed by leadership.
Offer Flexible Work Options: The pandemic has proven that remote work is working. As a result, many employees feel it’s reasonable to expect the option to work from home at least some of the time. If your employees feel like their voices aren’t being heard, they’ll be more likely to leave especially if there’s little-to-no justification for going back to the office full-time.
Clear and Transparent Communication: Lack of clear communication can be a significant factor in turnover. Often found on results of employee opinion surveys, “Employees feel they’ve yet to hear enough about their employers’ plans for XZY or that they do not know what is going on within the organization.” Organizations may have announced a general information or half way pushed vital information going forward, but too few of them, employees say, have shared detailed guidelines, policies, expectations, and approaches to make them successful at their job.
Now that the job market is hotter than ever, employees may choose to leave for a company that promises them what they want from the offset rather than deal with the anxiety and lack of clarity from poor communication at their current employer.
3. Invest in Your Employees' Development
The pandemic has left many employees feeling stagnant and ready for anything new and exciting. Over the past two years, many employees were home more than ever before, allowing for extended periods of reflection and exploration. The pandemic has exposed the fragility of daily life, and many are reassessing their goals and what it means to spend their life meaningfully. Recently, CNBC reported that of the 26% of workers planning to leave their employers after the pandemic, 80% are doing so because they’re concerned about their career advancement.
Now is the time to proactively and transparently create pathways for employee growth and development. If internal career pivots are possible, make sure employees are aware of them. Encourage leaders within your organization to dig deeper into their direct reports' goals during their 1-on-1 conversations and empower them with the tools and resources they need to achieve their goals. Provide company paid training and development opportunities that are communicated and encouraged by the organization and not by the employee having to seek out those opportunities.
While the Great Resignation will likely continue into 2022, employers must truly open their eyes to the realities of the current labor markets and challenges ahead. Addressing retention and turnover is not a “one size fits all” approach by any means. By utilizing some of the recommendations above, organizations can commit to their valued employees and provide a great working environment where staff feel valued and appreciated. It is important to emphasize that employers who “take care” of their staff will receive the commitment and support from those employees in return.
SESCO Client Questions and Answers
The following are recent SESCO client questions and our responses so as to inform our clients and perspective clients the type of service that we provide.
Client: We have employees in all 50 states. What states require a higher guaranteed salary threshold than the federal government to be exempt?
SESCO Research and Reply: SESCO provided the client with a detailed state-by-state guide to include the following research results:
- Alaska — The salary threshold for administrative, executive, and professional exempt employees is based on a salary of no less than two times the state minimum wage for 40 hours. Effective January 1, 2022, the salary threshold is $827.20 per week.
- California — The salary threshold for administrative, executive, and professional exempt employees is based on a salary of no less than two times the state minimum wage for 40 hours. Effective January 1, 2022, the salary threshold is $1,200 per week for employers with 26 or more employees, and $1,120 per week for employers with 25 or fewer employees.
The salary threshold for computer exempt employees is set by the California Department of Industrial Relations (DIR) each year. Effective January 1, 2022, the salary threshold is $2,022.88 per week.
- Colorado — The salary threshold for administrative, computer, executive, and professional exempt employees is set by the Colorado Overtime & Minimum Pay Standards Order. Effective January 1, 2022, the salary threshold is $865.38 per week.
- Maine — The salary threshold for administrative, executive, and professional exempt employees is based on an annual salary of no less than 3000 times the state minimum wage. Effective January 1, 2022, the salary threshold is $735.59 per week.
- New York — The salary threshold for administrative and executive employees is based on a salary of no less than 75 times the state minimum wage, which differs based on the region of the state. Effective December 31, 2021, the salary threshold is as follows:
- Nassau, Suffolk, and Westchester Counties: $1,125 per week
- Remainder of the State: $990 per week
- Washington — The salary threshold for administrative, computer, executive, and professional exempt employees is based on an annual salary of no less than 1.75 times the minimum wage for 40 hours. The state’s minimum wage is scheduled to increase on January 1, 2022. Effective January 1, 2022, the salary threshold is $1,014.30 per week.
Client: As the Director of Human Resources, if an employee confides in me that they are pregnant and requests that I do not tell anyone because the employee doesn't want anyone to know yet, what are my obligations to both the employee and my employer? The reason why I'm asking is that her supervisor came to me this morning and explained to me that they have a performance issue with this employee and may need to let her go if she doesn't improve.
SESCO Response via Telephone: We suggested that she do not communicate the pregnancy to the supervisor as the pregnancy is not job related nor creating the performance concerns. Let the employee know that her pregnancy will be held in confidence. Tell the supervisor to properly coach, counsel and document performance issues and if at some point it results in a recommendation of termination to discuss the details and facts with the Director of Human Resources.
Client: To prevent falsification of hours worked by employee punching another employee's time card or entering the employee's code on their behalf, this multi-state client has been researching the implementation of timekeeping systems that use biometric data such as fingerprints, facial recognition, etc. Their questions were how should they store such information and should they get the employee's written consent to use the biometric data?
SESCO Response via Telephone: Several of the states that the client operates requires the employee's written consent and our recommendation was even when a state law does not require written consent we recommended the consent. We also discussed the importance of confidential storage of any biometric data utilized.
Special Thanks to New SESCO Clients!
Communities in Schools of Southwest Virginia
Primarily Japanese Auto Service
H&S Mobile Home Supplies
Mercy Community Healthcare
National Pawnbrokers Association
Perry County Medical Center
Merry Christmas & Happy New Year
Our team at SESCO Management Consultants truly value the relationships that we have developed over our nearly 80 years of providing professional human resource and employment law services to our valued clients. Please know that we sincerely appreciate the opportunity and are honored to serve our clients in various industries to ensure mutual growth, success and effectiveness.
As in 2020, this year presented significant challenges to all of us. As we know, some of these have included COVID, federal, state and industry vaccine mandates, inflation, supply chain challenges, employee retention and resignation challenges as highlighted in our lead article, compensation and profitability and many others. Through our inspiration, perspiration and desire to serve others, we hope that we have provided timely articles, staff alerts and immediate responses to emails and telephone calls. We are very proud of our professional team in which we have an average tenure of 19 years. Our paraconsultants, consultants and legal team look to serve you and our new clients in 2022.
Now while we are at the end of the year, and all of us will be celebrating the spirit of Christmas and New Year's, we want to wish you, your organization, your customers, team members and their families the very best and a prosperous New Year.