Companies build talent rather than buy

by 03 Apr 2007

AUSTRALIAN EMPLOYERS are focusing increasingly on building talent rather than buying it, with salary increases for those remaining in the same role outpacing overall salary movements, according to recent research.

Overall, salaries had risen by 4.2 per cent over the past 12 months, a steady increase in line with previous years. Meanwhile, the wage increase for same incumbents (the same person in the same role year on year) was 4.5 per cent, a substantial increase above the overall salary movement including new hires.

These figures reflected a continuing trend for businesses to focus on building and retaining their key performers, rather than pay higher rates to attract new talent, according to Ken Gilbert, business leader of Mercer’s human capital advisory services, which conducted the research.

“Today employers are still grappling with the pressures of the tight labour market but they are managing their rewards strategies more wisely,” he said.

“This indicates that employers are managing rising costs by segmenting the workforce and offering a premium to retain those who hold critical skills or are the best performers.”

While around a quarter of companies target external recruitment as the primary source of the talent they need, the survey found they expect to have a much stronger focus on developing the capability of existing employees in order to fill job vacancies in the future.

Two to three years ago when labour shortages first hit, employers were prepared to pay premiums to secure new employees, which led to demand for pay rises across the total workforce – something that was not sustainable longer term, said Gilbert.

As a result, employers were found to be rewarding individuals in critical roles or with critical skills more highly than employees in other job families. In effect, overall salaries in the job sectors in which these roles sit are not increasing at an equal rate.

For example, while Australia’s booming engineering and construction job families remained ahead of the market this year, with pay increases for same incumbents rising 9.6 per cent and 7.8 per cent respectively, the broader sectors in which these skills are employed (predominately mining and construction/engineering) experienced overall pay movements of 5.2 per cent and 4.8 per cent respectively.

“This indicates that companies are concerned about how they will fund continuing widespread pay increases and to combat this are now demonstrating a targeted approach to reward: considering where the critical skills reside, where the high potential employees are, and using rewards as a lever to ensure these individuals are retained within the business,” Gilbert said.

Results indicated stronger performance-based pay differentiation in 2007 compared with previous years as pay movements for ‘top performing’ employees increased by almost 10 per cent, while employees in the lowest performance quartile received the lowest increase in over four years, moving only 1.6 per cent.

Companies are also introducing more structured programs designed to build the capability of existing employees so that when vacancies occur, or new skill sets are demanded, they can fill these roles from within, rather than having to go to the external market, Gilbert said.

The survey found the engineering and construction job families have continued to record significant increases, reporting wage movements of 9.6 per cent and 7.8 per cent respectively, while senior management roles reported increases of 5.5 per cent.

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