In order to remain competitive, organizations need to build strategyÂ around their pay practices.
By Wendy Brown
2017 was a year of transformation for compensationÂ practices. More and more states banned the salaryÂ history question, pay equity laws became moreÂ prevalent, and major tax reform bills threw payroll intoÂ disarray. With the unemployment rate at historic lows,Â employees gained many more options when it came toÂ employment opportunities.
And now, in order to attract and retain the best talent,Â organizations have turned their attention to cultivatingÂ a top-notch employee experience that they can reallyÂ brag about. The challenge they all face? A well-executedÂ employee experience relies heavily on three things thatÂ managers need to do:
- coach and train employees;
- effectively share sensitive information aboutÂ compensation and performance; and
- recognize employees for their contributions.
But do organizations provide managers with theÂ training, resources, and opportunities needed to be ableÂ to successfully deliver a desirable employee experience?Â PayScale surveyed more than 7,000 organizations to findÂ this out as well as to better understand the relationshipÂ between pay practices and business results. The surveyÂ found:
1. There is a crisis of confidence. An impressive 85Â percent of managers have confidence in their ability toÂ explain the rationale behind pay decisions to employees,Â but only 37 percent of organizations share thatÂ confidence in their managers.
2. Salary increases remain stagnant. Fifty-nine percentÂ of organizations report employee retention as a majorÂ concern for 2018, which is a slight increase from 56Â percent in 2017. Perhaps this is encouraging raises: 84Â percent of organizations plan to give base pay increasesÂ in 2018. But the survey found that the average increaseÂ will remain similar to last year, with 73 percent ofÂ employers estimating an average increase of threeÂ percent or less. Employees in competitive jobs or thoseÂ who are outperforming their peers may be commandingÂ much more in compensation. Excluding promotions,Â the highest base pay increase given to an employee wasÂ greater than 10 percent for 40 percent of organizations,Â with 13 percent of organizations giving a pay increase ofÂ 20 percent or higher.
3. The market is ever-changing. More than half ofÂ organizations (52 percent) have completed a fullÂ market study within the past year, and 17 percent priceÂ individual jobs in the market at least weekly, up from 13Â percent in last yearâs survey.
4. Organizations are counting on variable pay toÂ hire and retain employees. Seventy-one percent ofÂ organizations offer variable pay such as bonuses andÂ commissions. The survey showed a distinction betweenÂ types. The number of organizations offering spotÂ bonuses decreased year-over-year from 46 percentÂ in 2017 to 39 percent in 2018. Individual incentivesÂ increased from 64 percent to 67 percent, and hiringÂ bonuses did too, from 27 percent to 34 percent. InÂ addition, employee referral bonuses are gainingÂ popularity with 39 percent of organizations offeringÂ them. Company-wide incentives are also gainingÂ momentum with 30 percent offering organization-wideÂ bonuses, and 22 percent offering profit sharing.
5. Pay equity is top of the mind, but not on top of theÂ to-do list for 2018. Top-performing organizations areÂ more likely to report that theyâre actively addressingÂ workplace inequities than typical organizations. ThisÂ is true across gender (35 percent versus 26 percent);Â race and ethnicity (28 percent versus 23 percent); andÂ other protected classes (27 percent versus 21 percent).Â That said, 63 percent of top-performing organizationsÂ have no plans to conduct a race or gender pay equityÂ analysis in 2018, compared to 66 percent of averageÂ performers.
In many ways, compensation in 2018 will look very muchÂ like 2017, with 84 percent of organizations planning toÂ give increases. While 25 percent of companies averagedÂ three percent raises in 2017, 30 percent predict that theyÂ will give an average raise of three percent in 2018. TheÂ numbers also show that the majority of organizationsÂ predict that their bonus or incentive budgets will notÂ change in 2018.
In order to stand out, organizations need to focus onÂ their pay brand. Pay brand is the way existing and futureÂ employees feel about the compensation and rewardsÂ at an organization. Its backbone is the organizationalÂ compensation strategy and it is not only shaped byÂ the way an organization paysâincluding how muchÂ and whyâbut also by how they talk about pay withÂ employees.
Organizations should be clear and transparent about the reasons that lead to a particular compensationÂ structure plan. To attract future employees, retainÂ current employees, and stand out among competitors,Â HR needs to ensure that the pay brand is crafted withÂ intention and err on the side of over-communicationÂ with employees about these topics.
Wendy Brown is director of content marketing at PayScale.