Four Things You Must Do to get a High Return on Your Salary Dollars in a Tight Labor Market

We are experiencing significant growth in employment with labor shortages, and the lowest unemployment rate in years. We can expect continual upward pressure on salary levels in the labor market. Many jobs have taken longer to fill, with high-demand entry level salaries skyrocketing. In addition, annual pay increases have resulted in bloated salaries for legacy employees. As a result, many employers are asking: “What am I getting for higher salary costs?” Therefore, it’s time to take a look at the compensation program to make sure that you are paying for good employee performance, NOT paying for poor performance, and receiving value for your salary dollars.

I am going to share with you the four most important things you need to do to ensure that you are getting great value out of your salary dollars:

• Be extremely selective in hiring:
-Say “No” to candidates that fill a temporary need but are questionable in the long run
-Put off hiring as long as you can and until you find the right candidate
-Be creative with your current labor force

• Get a good understanding of your employees’ performance:
-Conduct annual performance reviews for all employees in order to better understand the performance of each employee v. their job responsibilities
-Rank all of the employees in their group or department from highest to lowest
-Break down the ranking into three groups: top performing employees; employees that meet their job requirements; and, employees that are not meeting their job requirements

• Reward top performance with top pay increases and good performance with standard pay increases:
-Reward the small group of top performers with the highest pay increases
-Reward the broad base of employees that meet (but not exceed) job performance requirements with the pay increase that you, in the past, would have provided to all employees

• Withhold pay increases for poor performance:
-This is the most difficult group to deal with
-If you continue to reward this group with pay increases you will not only upset the top performers, but you will also be sending the message that you reward mediocrity, and years from now you will wonder why your payroll is bloated

If you have any questions about salary policy or other human resources issues, please do not hesitate to contact me at or 312.498.4979.