How a total rewards approach can support early childcare staffing

The early childcare staffing crisis expanded during the pandemic. A focus on total rewards could help centers better attract and retain workers.

In brief

• Fewer than half of early childcare workers say they are highly likely to continue in their roles, with low compensation the common reason for exiting
• While base pay is the most frequent consideration for early childcare workers, an EY-Parthenon survey shows tailored benefits can also help retain staff

Overall, tight margins in early childcare have historically constrained pay and benefits in the industry. In general, investments in compensation result in tuition increases for parents. An ongoing supply and demand gap in early childcare (i.e., approximately 19.5m children under 5 and only approximately 8.5m childcare seats in the US according to present Census Bureau data) already puts upward pressure on tuition prices and creates affordability challenges, so employer decisions around compensation need to be strategic to improve labor outcomes while containing prices for families. Given this context, the EY-Parthenon team examined the ways in which compensation and benefits could be enhanced within the bounds of employer resources to better meet teacher needs and expectations, leading to improved outcomes for both educators and employers.

Compensation’s role in attracting and retaining top talent

Our key finding: Approximately 70% of early childcare educators (termed the “Money First” segment) cite base pay as one of the top five most important criteria when evaluating an employment opportunity. Of this group, roughly 60% rank base pay as the number one criterion.

This suggests that, on average nationally, substantive base pay is likely the most powerful driver of teacher attraction and retention and should be the focus of compensation-related investments going forward. The significance of base pay to educators calls attention to three key market realities:

1. Early childcare centers have historically underpaid staff and relied on attracting impact-driven individuals.

Median early childcare wages (approximately $13/hour) are on par with or slightly below those in retail and fast food, and meaningfully below those in other educational roles (Figure 1). Additionally, early childcare wages are below the living wage for adults with no children in all but nine states. One center director’s comment is emblematic: “People who go into teaching don’t do it for the money, but rather their passion for providing children with essential skills and watching them grow. For years we have focused on this calling to drive our hiring and recruiting efforts, not pay.

2. During the pandemic, alternative occupations — namely retail and fast food — offered similar or higher pay with less intensive job descriptions. 

These industries were cited by educators as offering similar pay to childcare roles without the responsibilities and risks of caring for children, as well as greater schedule flexibility. Many employers in these spaces expanded pay¹ and other benefits during the pandemic to combat labor shortages. This directly called traditionally impact-focused value propositions of childcare employers into question.

3. Expanded options have led educators to closely evaluate how well their compensation aligns with current needs and expectations.

Approximately 60% of surveyed educators said that today, they would prefer a scenario in which they received higher compensation and zero benefits to one in which they received lower compensation and substantial benefits. Critically, only 30% of surveyed educators strongly agree with the statement: “I would work in early childcare even if I were given the opportunity for higher pay in another industry.”

Enhancing benefits packages to support diverse workforces

Alongside base pay, benefits do remain an important part of the compensation picture. Differential benefits preferences within the Money First segment suggest that, while still focusing investment on base pay, employers can create tailored benefits packages to support their diverse workforces. When segmented by the most important benefit cited, four personas emerge within the Money First population (Figure 2).

Standard Seekers

“Standard Seekers” rank paid time off or sick days as their most important benefit. This persona is deemed “standard” because paid time off and sick days are the most consistently desired benefits within the Money First population overall: approximately 85% cite paid time off as a top five most important benefit, and approximately 65% cite sick days as the same.

Prepared Workers

“Prepared Workers” prioritize health insurance, retirement support or disability insurance as their most important benefit. A greater proportion of Prepared Workers are 25 to 34 vs. the general population at approximately 45% vs. 38%, respectively.

Self-Starters

“Self-Starters” rank tuition assistance, promotion opportunities or professional development opportunities as their most important benefit. This segment has the lowest educational attainment of the personas (approximately 32% with a bachelor’s degree or above), underscoring these priorities.

Working Parents

“Working Parents” cite discounted childcare or parental leave as their most important benefit. More than 80% of educators in this persona have children, while less than half of educators overall cite having children.

Rethinking total reward strategies can support improved staffing outcomes

Taken together, our findings related to compensation and benefits preferences among early childcare educators suggest three key recommendations for centers seeking to improve staffing outcomes while remaining within budget:

1. Prioritize increases to base pay 

Especially relative to alternative and lower-skilled employment opportunities, base pay is the primary lever through which early childcare centers can better attract and retain workers. Upward base pay adjustments should be the priority for compensation-related investments. As centers look to recalibrate base pay, they may need to consider the specific competitive dynamics in their geographies, local minimum wage trends and expectations of their unique workforces.

2. Offer benefits aligned to life stages, but tailor the menu 

Early childcare centers can offer a menu of benefits from which employees can select, based on personal goals and circumstances, to improve attraction and retention. Offering a curated set of benefits strategically aligned to life stages embodied by the personas is the most cost-effective strategy, versus offering a broad catchall array of benefits. With the former approach, employers respond to and appreciate a spectrum of needs, which evolve over educators’ lives, while leaving room to invest more meaningfully in base pay. Critically, the distribution of preferences and needs varies across workforces based on geographic and demographic factors, so centers may need to closely assess their specific employee populations to tailor investments and create effective benefits packages.

3. Strive for quality in provided benefits 

It is important for centers to confirm that there is depth in the benefits selected for their packages, not just breadth, to have the greatest impact on hiring, retention and employee satisfaction. Across benefits received today, only 50% to 75% of surveyed educators cite being satisfied with quality, depending on the offering. This provides more reason to “go deep” on a set of benefits tailored to specific workforces rather than try to manage a broad portfolio of lower-quality offerings.

Early childcare centers are playing catch-up when it comes to compensation realignment and will have to act fast to remain contenders in the labor market. Many major retail and fast-food employers, which are increasingly in the consideration set for early childcare workers, re-evaluated compensation during the pandemic in an effort to combat labor shortages and are investing in perks that are relevant to their specific employee populations². Redefining compensation is the primary avenue through which early childcare employers can improve their odds of retaining staff and attracting new talent, and while there is no one-size-fits-all approach, the urgency to develop new strategies is nationally shared.

Thank you to Julia Curley, Sam Wolfson, and Liz Webber for contributing to this article.