If you talk to any business owner or human resource manager in the current economic context, you’ll undoubtedly hear about how much total pay packages are increasing and how much economic pressure that is placing on businesses around the country. We seem to be in the midst of a dramatic period of salary changes, and this can be attributed to a wide range of factors.
This is especially true in the EdTech and Education arena. TRN recently surveyed sales professionals across all seniority levels from their portfolio of 200,000+ candidates with the goal of providing a comprehensive overview of the Education and Technology sales talent market. Statistics from this research report show that senior executives, regional managers, and senior individual contributors have realized an average increase of 17.5% in on-target earnings (OTE) since 2020, while junior individual contributors and account managers have been the beneficiaries of 55.8% and 28.9% increases respectively. These are significant jumps that point to just how dramatic this trend seems to be.
In this article, we’re going to explore some of the reasons why we have seen such significant compensation increases in recent years, and what it means for companies who still must compete to attract and recruit qualified talent in order to succeed.
8 Reasons Why Salaries Have Increased
1. The cost of living has gone up significantly.
While it’s tempting to blame everything on the pandemic, the truth on the ground is that the cost of living has risen significantly over the past few years. As such, salaries have had to increase accordingly to provide employees with the same quality of life that they’ve come to expect.
This is a natural economic cycle of course, but it does seem that the severity of the impact has been pronounced in recent times – with no signs of slowing down. A recent survey from Bank of America showed that 67% of employees say that the cost of living increases are still outpacing the growth in their salaries, making it even harder to make ends meet.
This suggests that further increases may still be on the horizon as the lagging indicators continue to manifest in local economies across the country.
2. Many states have increased the minimum wage over the last few years.
There have been many states that have chosen to raise the minimum wage over the last few years and this creates upward pressure on all salaries within an organization as it works its way into regulation. Some examples include the following:
- California raised its minimum wage to $15 per hour at the start of 2023 and is set to raise it again to $16 per hour in 2024.
- Massachusetts raised its minimum wage to $15 per hour at the start of 2023.
- Colorado increased their minimum wage to $12 per hour at the beginning of 2020 and it is set to increase again to $14.42 per hour in 2024.
- New York is slowly increasing its minimum wage to $15 per hour over time, with certain counties and companies on faster schedules than others.
These are just a few examples of how states are continually raising the minimum wage above federal benchmarks in order to appease their constituencies and encourage economic participation in their local economies. This has a knock-on effect on all salaries and is a contributor to the increases that we’ve seen across the board.
3. Inflation remains high, on the back of the economic stimulus necessitated by the COVID-19 pandemic.
The pandemic had many economic consequences, but inflation remains one of the broadest and long-lasting. As the USA provided economic relief to a country in lockdown and supply chains could not keep up with consumer and commercial demand, it created a significant inflationary tailwind that continues into 2024. We’ve seen the prices of almost everything rise and this has a myriad of knock-on effects.
Salaries must rise as well then, if employees are to retain the same purchasing power that they once did, and there is significant social pressure to do so. The difficult thing for companies is that once salaries have risen, it is nearly impossible to bring them down again. As inflation eventually slows, that doesn’t mean that salaries can flex back to where they were. As a result, the inflation gets solidified in market-related salaries, accounting for some of the increases we’ve seen.
4. Aggressive hiring across the country has made competing for talent more difficult.
In search of growth, we’ve seen the level of aggression in hiring practices increase significantly in recent years – as companies strive to attract, recruit, and retain the people who can take their organizations to the next level. This naturally creates competition in terms of salaries as the best and brightest have many different options to choose from.
While some of the competition comes down to other aspects such as company culture, job perks and benefits, mission, and so on – financial compensation still remains a core negotiating tactic that is utilized by everyone. Therefore, if you want to compete for this top talent and bring it into your company, you have to match (and often exceed) industry-related salaries that are on the up and up.
5. Labor shortages are pushing salaries up.
The US has found itself in a position of labor shortage where we simply aren’t getting the number of people that we need to fit into the new world of work. The US unemployment rate is still close to a historic low at 3.7%. As roles shift and the context of the business landscape changes, the labor market is struggling to produce enough people with the right skills and experience to fill open positions.
The shortage then pushes salaries up because companies are desperate for those skills and are willing to pay over and above industry norms to make it happen. As an example, according to our research, 50% of sales-focused professionals have seen above-inflation compensation increases over the past year – illustrating that in search of growth, specific skills are garnering higher and higher salaries and bonus plans as the supply lags behind demand.
6. Quitting hits record high as people reconsidered their career choices.
As the labor market has broadened and remote working has become more popular, we still see significant numbers of people quitting their jobs and searching for something that better suits their new lifestyle. This can be particularly problematic for employers because the time and effort that has to be spent to re-hire and re-train a new employee is immense, and you also lose all that accumulated knowledge and expertise that has been so hard fought.
2022, in particular, was a record-breaking year in terms of people quitting, with federal data estimating that more than 50 million workers quit in that year alone. This is staggering, and it has a significant impact on the economic make-up of various industries that have to grapple with the loss of their people. The natural response is that companies have to offer big incentives in order to retain their employees and that often includes increases in salaries.
7. Demand for talent continues to increase while supply wanes.
Demand for talent at all levels has increased as companies strive to adapt and evolve to a fast-changing business landscape that requires entirely new sets of skills. Organizations recognize that the level of talent they’re able to bring in will have a disproportionate impact on their ability to remain relevant and profitable moving forward.
However, at the same time, the supply of this talent seems to be waning. The new generation doesn’t want to come into an office and work a traditional job because of the allure of flexible, remote, or even contract opportunities that seem to offer a better lifestyle and more control over one’s working life. This means that in order to counteract these trends, companies are having to increase financial compensation to attract talent and that has an inflationary impact on salaries throughout the organization – especially when you consider that you are competing for a shrinking pool of top talent.
8. Salaries are still catching up after years of stagnation.
An inconvenient truth that most companies need to acknowledge is that salaries have actually stayed relatively stagnant for years before we started seeing the recent increases. As such, a non-trivial component of the salary inflation that we’re seeing is actually just catching up with some of the growth that employees should have had over the last decade or more but didn’t.
To put this into perspective, look at this research from the Economic Policy Institute. It shows that during the period of 1979-2020, salaries grew by only 17.5% which pales in comparison to the corresponding productivity increases which are marked at 61.8%. This means that salaries have lagged productivity growth by almost 3x over that period.
Recent salary increases should, therefore take this perspective into account as it seems that we are only now starting to catch up much of that growth that we had previously taken for granted.
Conclusion
This is not a trend that looks like it is slowing down and companies need to confront the reality in order to plan for the future. Great talent simply doesn’t come cheaply and so strategic thinking is required to adjust to this new normal. However, to look at it from the other side of things – this is an investment. Investing in human capital is what enables your organization to grow and evolve – and can you really put a price on that?
Here at The Renaissance Network, we help Education and Technology companies navigate the murky waters of the modern labor market, assisting with organizational strategy, permanent and interim recruitment, and compensation approaches across a variety of different contexts. If this is something that you’d like to explore, be sure to get in touch today, and let’s see how we can work together to help you optimize your organization.
