How companies are responding to rising pressure on wages and benefits

By Andrew Kenney

Business is booming for the family-owned construction company Gray Builders LLC. Over the last three years, the Pennsylvania company's staff has nearly doubled to 31 workers. Meanwhile, a focus on commercial projects and health care facilities has paid off with new jobs.

"We've had a major demand for work, so we've had to go out and find more people," said Robert Kurtz, CPA, the company's controller. But recruiting and retaining construction workers and project managers has been extraordinarily difficult this year, and it's forcing the company's leadership to rethink not just hiring but their overall business strategy. It's part of a striking nationwide trend.

In the fourth-quarter edition of the Business & Industry Economic Outlook Survey released by the Association of International Certified Professional Accountants, respondents predicted an average increase of 4.3% in salary and employee benefit costs in the year to come — the highest such measurement in at least 12 years.

At Gray Builders, wages during the pandemic have increased by $3 an hour for new hires, and the total wage increase for new and existing employees is about 10%, Kurtz said. The company also is planning to offer health insurance across the company for the first time.

"There's a shortage of workers, so they can ask for more than they used to," Kurtz said, noting that the COVID-19 pandemic also has boosted employees' interest in health benefits. In response, Gray Builders is "working with the insurance company to say, 'What are our options here, what can we offer?'"

The AICPA survey found that Gray Builders' strategies are common. Among respondents:

  • 67% are paying higher wages and salaries.
  • 45% are offering more flexible work arrangements.
  • 25% are offering signing bonuses.
  • 20% are offering more generous benefits.

Expectations for wage and benefit increases have grown for six consecutive quarters in the AICPA survey. Entry-level employees were especially difficult to hire, with more than half of respondents (53%) reporting those were the most difficult positions to fill.

Making concessions to employees, however, can lead to ripple effects throughout the budget. For now, some companies such as Gray Builders have passed along higher costs to customers — but Kurtz and others said that's not a long-term fix to higher cost pressures.

Instead, Kurtz and the company's owners are instilling a philosophy of cost efficiency. For example, they're examining Gray Builders' subscriptions to apps that they use for recurring tasks such as tracking tools and preparing bids.

"We're trying to look at subscriptions and say, 'What do you really need?' They add up," Kurtz said.

The company also is freeing up cash flow by paying down higher-interest loans and delaying the purchase of new vehicles by investing more in maintenance. To help institute this new approach, the company enlisted a business coaching program and honed its financial message.

Kurtz's briefings to employees end with a request for suggestions on savings and efficiency: "Help us because, if we're not doing well, then we can't pay you," he explained. "A lot of folks took to it."

Automation and productivity

With labor costs rising, finance leaders also are trying to boost each worker's productivity.

In the Canadian province of New Brunswick, the provincial government recently announced a $2-an-hour increase to the minimum wage. That will put upward pressure on wages at Craft Coast Canning, a company that sells canning services and supplies to breweries.

The company, which is approaching $10 million in revenues, is trying to absorb those costs while minimizing price increases.

"If your costs increase and you just arbitrarily increase your pricing to your customer," said Wayne Solomon, CPA (Canada), CFF/CITP, ACMA, CGMA, director of operations at Craft Coast, "you're going to price yourself out of the market and be uncompetitive, and the customers will let you know in a hurry."

Instead, Craft Coast is investing in automation. For example, a new machine will be able to put well over 100 printed sleeves on cans per minute, compared with about 75 per minute on the current machine.

"We're always looking for new ways to be innovative and more efficient," Solomon explained. "All that's geared around thinner margins."

Finding the right staff

Still, the shift to automation hasn't changed the need for good people. Maintaining and upgrading an automated line requires a workforce with technical, mechanical, and analytical skills. That kind of worker is hard to find, so Craft Coast invests in training them.

"We find people that are inquisitive but have a mechanical sort of aptitude. They don't have to be engineers or millwrights, but they have to work with their hands and be willing and able to do a little bit of troubleshooting," Solomon said. "And then we have our senior operators mentor them."

Facing similar challenges, Gray Builders has tried to foster connections with vocational high schools and other feeder programs, Kurtz said — all while keeping current employees happy with raises and other perks.

"We're just trying to be proactive and show people appreciation before they go and look for another job and show us an offer" from another construction firm that the employee would like Gray Builders to match, Kurtz said.

In the AICPA survey, 37% of respondents said that retaining employees was as difficult as recruiting them. Another 9% said retention was even more difficult.

The labor crunch has underlined the need for strategic hiring in tech companies, too, said Jami McLeod, CPA, a finance leader who has spent much of her career in the technology sector.

"People need to clearly define the role of those who they're trying to recruit and retain. Organizations need to follow up with that and work closely with their new recruits," McLeod said.

"We don't want people to leave because they were either misinformed or there was such a gap between expectation and the reality of the organization. And it's very hard to get that culture fit and corporate fit when you have remote workers," McLeod said. "I wouldn't want to be the employee who makes such an important decision to leave one work relationship for another, only to be disappointed.

"There is no substitute for listening and keeping in touch with employees, no matter where they're working from — remote, hybrid, or in the office."

And, of course, finance leaders must be personally prepared to respond to employees' demands for pay and benefits. If Solomon can't meet a request, he candidly explains why and asks for solutions.

"What I've been doing is being transparent: 'This is all that's available. We need to find another way to be more productive.' And be open to their suggestions," he said. "You need to be open to suggestions."

Andrew Kenney is a freelance writer based in Colorado. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.

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