Higher Compensation Could Help You Attract and Keep Workers
If your manufacturing company struggles to recruit and retain quality workers, you're not alone. Widespread skills gaps and rising fringe benefit costs mean that tens of thousands of U.S. manufacturers are facing a critical labor shortage. A possible solution is to offer workers higher pay, but before you up the ante on compensation, read this.
Recent surveys indicate worrisome trends in the manufacturing sector. The skills gap and need to attract and retain a skilled workforce continue to be manufacturers' main concerns, according to a July 2019 report by the Manufacturing Institute (MI), “The Aging of the Manufacturing Workforce: Challenges and Best Practices.”
“Manufacturers face a workforce crisis with more than half a million unfilled manufacturing jobs today and 2.4 million jobs that may go unfilled by 2028,” said Jay Timmons, chairman of the board of the MI. Currently, approximately 25% of the manufacturing workforce is over 55 years old. Meanwhile, the industry is having trouble attracting enough new, younger workers with the right skills and qualifications.
The MI's findings were confirmed by another study released by the National Association of Manufacturers (NAM). The 2019 National Manufacturing Outlook and Insights report reveals that manufacturers consider the labor and skills gap to be their greatest barrier to growth, with 52% citing it as an issue.
Unfortunately, there's no silver-bullet solution. Many companies are trying to retain older workers past their scheduled retirement date. But you may also want to review your compensation packages to remain competitive in today's tight labor market.
To determine the best compensation solution, work through the following five steps.
1. Support your corporate culture. Ultimately, your culture determines how, and how well, your plant operates. Think about what you can do to attract, motivate and retain employees who will support your business plan and help you reach organizational goals. What role might compensation play in reaching these skilled and dedicated workers?
2. Pick best behaviors. Drill down to the specific types of behavior you want to reward. Is performance the sole or main driving force behind pay increases? Do you also want to reward other qualities, such as attendance and loyalty? What about unusual talents that set certain workers apart?
Increasingly, manufacturers are paying employees for having job-related skills, instead of based on “traditional factors” such as tenure, education or years of experience. Think about how you can allocate compensation dollars where they'll be the most effective.
3. Monitor the competition. It's not just what you're willing to pay workers, but what the competition is offering. How are your main competitors compensating workers? If they've raised pay rates or introduced new benefits that are giving them an edge in the labor market, you may need to follow suit.
Don't limit your competitive research to fellow manufacturing companies. These days, workers, particularly younger ones, frequently cross-industries when searching for a job. If you hope to lure someone working in the construction field, for example, you may want to offer flex-time benefits. An ex-service member, on the other hand, may seek a well-defined “employee value proposition” that maps out the skills he or she will acquire and the pay raises associated with mastering those skills.
4. Build it into your budget. Crunch the numbers with your financial advisors to determine what your budget can handle. Even if you can afford to pay higher compensation now, you need to ask whether it's in your company's best interest over the long term. If you decide to hold pay rates steady, you may still be able to attract workers by offering low or no-cost benefits, such as extra time off or childcare options.
5. Regularly review your compensation plan. Whatever you decide to do about compensation, it isn't a get-it-and-forget-it proposition. Closely monitor the impact of any changes (or lack of changes) in your compensation model. Are you receiving more job applications, or are employee tenures rising? Is the labor market starting to shift to favor employers? Trends and developments require that you review and possibly tinker with your pay formulas.
Can You Afford It?
The labor shortage is real, and no manufacturer can afford to bury its head in the sand. Offering a more attractive compensation package may help your company, but before you publicize the decision, talk with your financial advisors to make sure you can afford it.
For further information on recruiting and retaining quality workers for your manufacturing business, download our eBook, Manufacturing: Overcoming Workforce Challenges.