Job Offers (and Counteroffers) in a Slowing Economy

Consider reviewing your total rewards practices in preparation for an increasingly likely economic downturn this year or next.  

In August 2022, the US economy added 315,000 jobs and the unemployment rate stood at 3.7 percent. High turnover and a dearth of qualified applicants for vacancies has created extreme competition for talent, leading to more generous job offers (and counteroffers). Inflation (8.5 percent in July 2022), strong consumer spending, and a healthy economy are driving wage, salary, and benefits increases all while signs of recession are mounting.  

Recessions typically reduce consumer spending and, therefore, the demand for talent. Organizations still in the grip of a talent shortage face two dilemmas:

1. Whether to keep on hiring to match current customer demand
2. Whether to increase compensation to attract and retain talent. 

For many, the current workload leaves no choice but to continue hiring—particularly in critical roles. However, leaders who fear a recession have good reason not to create a significantly higher wage structure for new hires as incumbents will expect (and deserve) the same. Instead, consider some alternatives. 

Recent survey data from The Conference Board demonstrate that compensation is not the only—nor necessarily the most compelling—tool in attracting and retaining talent. Indeed, fewer than one-third of the respondents in The Conference Board study said pay is the most important consideration in choosing a job. 

Instead of wielding compensation and traditional benefits as the primary tool in talent attraction and retention, note what employees have shared as other factors that matter when considering whether to join or leave a company: 

• A robust retirement plan with matching employer contributions
• Flexibility in determining place and hours of work
• Generous paid time off
• A better job title (where real and deserved). 

And while a great deal of research suggests that making counteroffers is a bad idea, those studies tend to focus on salary as the key component. A bump in pay may keep a person who threatens to leave, but it won’t be long before other underlying reasons for their dissatisfaction return. Consider other tactics if you’re making a counteroffer, such as: 

• Offering a promotion (where real and deserved)
• Articulating a clear career path
• Offering greater flexibility to accommodate work-life integration. 

Money matters, as do core benefits such as health care. But improving them to make your offers more tempting can create a structurally higher compensation floor. This might make it more difficult for you to weather a recession. Instead, develop a transparent compensation philosophy, use the inflation rate to justify greater, but controlled pay raises, and consider the alternatives above. Also remember to keep working on the intangibles, such as employee recognition and well-being, meaningful work, and an inclusive culture.