One of the most valuable services the Internal Audit Foundation provides to the profession is its annual Pulse of Internal Audit report. The 2024 edition was recently released, and once again it is packed with valuable benchmarking data for North American CAEs. This year’s report includes valuable (and often surprising) data on trends in internal audit budgets, staffing, plans and priorities. I count it among the must-read resources regularly published about the profession.

Normally, I would write about the array of findings in the report, but this year I’d like to focus on a single revelation: the dichotomy between the importance compensation plays in recruiting talent versus CAEs’ willingness to bolster pay as a recruitment strategy. Ok, maybe that a little strongly worded, but here is what Pulse shows:

• When asked to identify the No. 1 challenge in recruiting new talent, CAEs indicated it was in meeting “compensation expectations” (29%).
• But when asked how they would spend any additional funds beyond their current budget, only 12% indicated they would increase compensation. That compares with 49% who said they would add staff and 21% who would spend additional budget on technology.

In a survey I conducted in January on LinkedIn, CAEs ranked an “inability to attract and retain talent” as their top strategic risk over the next five years. Yet, despite acknowledging the risk and the role compensation plays in attracting talent, CAEs still would rather add staff than pay existing and prospective staff more money.

When analyzing dilemmas facing CAEs, I often reflect on my own experiences in the role. There are difficult trade-offs in executing management responsibilities – and talent management is no different. Compensation has long played a fundamental role in attracting top talent, and the talent market in the 2020s only accentuates that fact. Internal auditors with specialized skills (IT, cyber, data analytics, etc.) are in high demand but limited supply, making the competition fierce.

An attractive compensation package that reflects the complexity and importance of internal audit is essential to drawing the attention of highly qualified candidates. Interestingly, Pulse found the third most significant challenge in recruiting is “too few applicants.” Could the lack of interest be fallout from lagging compensation? It is almost certainly a factor.

As a CAE, I found that a comprehensive and competitive compensation package demonstrated my organization’s recognition of the internal auditor’s value, making it a more appealing workplace for those I wanted to attract and retain to the team. But there were other benefits:

Retain Skilled Professionals

Once a talented internal auditor is onboard, keeping them around becomes the next challenge. While many factors play into job satisfaction and loyalty, competitive compensation is crucial. That’s why organizations that regularly review and adjust compensation packages to reflect market trends, performance and inflation are more likely to retain their best employees. Moreover, a transparent compensation structure that rewards experience, relevant certifications and contributions to the organization’s success fosters a positive work environment and reduces turnover.

Enhance the Organization’s Reputation

The compensation strategy for internal auditors also impacts an organization’s reputation in the job market. Companies known for fair and competitive pay are perceived more positively. This aids not only in recruiting internal auditors, but in attracting talent across other departments. A strong employer brand, supported by a solid compensation philosophy, positions an organization as an employer of choice.

Reflect the Complexity of the Role

The second-biggest recruiting challenge, according to the Pulse report, is finding applicants who have the competencies needed to tackle today’s wide range of complex tasks, from compliance audits and risk assessments to advising on operational efficiencies and strategic initiatives. The role requires a blend of technical knowledge, analytical skills and business acumen. Compensation must reflect this complexity and reward the depth of expertise and breadth of responsibilities that internal auditors assume. Adequate compensation acknowledges the significance of the role and its contribution to the organization’s objectives, encouraging professionals to invest their best efforts.

My guess is that most CAEs readily agree that compensation is vital to recruiting and retaining talent essential to serving their organizations. But what strategies should they employ to “get compensation right?”

Benchmark Against the Industry

To ensure that compensation packages are competitive, CAEs should work with their organizations’ HR function to conduct regular benchmarking studies. When done correctly, this involves comparing compensation data with industry standards and similar organizations. Afterall, if you want to compete successfully in the marketplace, you better know what your competition is paying. Benchmarking should help identify gaps in current offerings and provide insight into trends, facilitating informed adjustments to compensation strategies.

Provide Performance-Based Incentives

Performance-based incentives are powerful tools for motivating and retaining internal auditors. Such enhancements, which typically include bonuses, profit sharing or stock options, reward employees for meeting or exceeding performance targets. They also align the interests of internal auditors with the organization’s goals, fostering a culture of excellence and accountability.

Offer Career Development Opportunities

For many professionals, career development opportunities are as valuable as financial compensation. Organizations can attract and retain internal auditors by investing in their professional growth. This can include covering the cost of relevant certifications, providing access to training and conferences, and offering clear career progression paths. Such initiatives signal an organization’s commitment to its employees’ success, enhancing job satisfaction and loyalty.

Emphasize Work-Life Balance

In today’s internal audit job market, work-life balance is critical. Although mainly an outgrowth of the pandemic, Pulse found that 70% of internal audit functions still allow remote working at least half the time or more. I wouldn’t want to be the CAE trying to recruit for the other 30%! In addition to remote-work options, flexible working hours and generous leave policies contribute to work-life balance, especially for the modern workforce that values flexibility and personal well-being.

A shortage of internal audit talent has been persistent for much of this decade, and it looks unlikely to abate anytime soon. There are no easy answers, and I fully recognize that CAEs’ hands are often tied when it comes to compensation. Government salaries, for example, are often set by statute or regulation, and there may be no flexibility when it comes to competing in the marketplace. But recognizing the role compensation plays in the marketplace is essential to crafting other recruitment and retention strategies. It is always inviting to have more staff, but I suggest striving for a balance between quantity and quality.