Organizations are embracing new strategies around compensation to engage employees.
There is a sea of change coming in the way that employers approach pay, as many companies are examining and modernizing their compensation philosophy in an effort to build more trusting relationships with their employees. PayScale’s 2017 Compensation Best Practices Report examines the relationship between pay practices and business results.The survey results show that organizations are starting to do things a bit differently when it comes to pay. It used to be that employers held all the cards when it came to compensation. Executives would set pay for employees and determine the size of a raise, and then employees would be told about any potential pay adjustments once per year (usually at the end of an annual review). The whole process was very transactional and typically shrouded in a great deal of secrecy.
However, that model is now changing. Increasingly, employees already know what they’re worth on the talent market thanks to online resources. These employees want to have a voice at the bargaining table when it comes to determining their pay. So pay is essentially becoming more of a dialogue at many companies and less of a one-way dissemination of information. In addition, many companies view pay practices and conversations about pay as a pathway for building more trust with employees and increasing employee engagement. When employees understand how pay was determined and feel valued at an organization, they’re likely to be more satisfied with their job and give a bit more effort.
Community-based participatory research (CBPR) has recently revealed some of the key findings about pay practices and employer attitudes. These findings reflect a transformation in how companies determine pay practices:
• Organizations set their sights on increased transparency. Thirty-one percent of organizations surveyed identified themselves as having a transparent policy about pay. These employers share market data with employees about compensation and show them where they fall in relation to the salary ranges at the company. More companies are planning to become transparent over the course of the year, as the survey shows that nearly half of all organizations aim to be transparent in 2017 (49 percent).
• The C-suite cares more about compensation. Payroll planning used to be a tactical exercise for HR professionals and never discussed by the executive team outside of annual budgeting. However, that is changing dramatically. Fifty-seven percent of organizations agreed that employee compensation is an important topic for their executives because these senior leaders realize that having great talent is the way to succeed in today’s tight market and pay is the way to retain and attract the best people.
• Fresh talent market data is critical. Increasingly, employers are realizing the importance of relevant market data for pricing talent. While 53 percent of organizations said they completed a full market study within the past year, 47 percent referenced market data for individual jobs more frequently than annually. Thirteen percent reference market data at least weekly, and that number rises to 39 percent among enterprise organizations. Real-time market data is especially important in competitive talent markets such as technology, where in-demand skills may change in the course of a few months or even weeks.
• Top-performing companies pay differently. The survey names top-performing companies as those that are leaders in their industry that have met or surpassed their revenue projections for 2016. These organizations approach pay more strategically than others. For example, these companies are more likely to pay more for the most competitive roles that really impact the bottom line. They do not have a blanket policy whereby each function gets an equal piece of the pie, instead they prioritize pay for the jobs that are more integral to achieving business success. In addition, these companies are more likely to foster a more transparent pay policy and to train their managers to talk with employees about pay. They welcome pay discussions because they understand employees feel more valued when they understand how pay was determined. And in fact, 53 percent of top-performing companies provided total compensation statements to employees—versus 38 percent of typical companies—a very tangible way to be more transparent about pay.
• Employers and employees disagree on “fair pay.” However, even with a greater focus on getting pay right, there is still a major discrepancy when it comes to perceptions of fairness. This year’s survey revealed that 44 percent of employers say their employees are fairly paid, but only 20 percent of employees agree. (In addition, 64 percent of companies said their employees felt appreciated at work, while only 45 percent of employees agreed with that same statement.) This disparity about how employers and employees approach and experience value and appreciation is called the ‘corporate chasm.’ It shows that it’s not enough to pay employees the right way, employers also need to engage in conversations with them about pay to ensure they understand how their pay was determined and where they fall in relation to the market.
• 2016 marks the return of cash. Companies appear to be cautiously optimistic and they’re opening the purse strings again when it comes to pay. In fact, 34 percent of organizations said the highest base pay increase they gave to an employee topped 10 percent. In addition, 11 percent reported an average increase over 5 percent. More and more, companies are abandoning the general three percent raise across the company and awarding their most valued employees with significant pay increases which are based on their performance.
This year’s research shows that compensation is evolving to both reinforce company culture and accomplish business results at many organizations. Companies are always looking to get more returns from their talent investments and drive deeper employee engagement. Many employers are realizing that how a company pays is really as important as what a company pays its employees. Compensation policies extend the culture at an organization. Employers who pay fairly for competitive positions and foster open dialogue around pay will build more trusting relationships with their employees that, in turn, will lead to organizational success.
Mykkah Herner is the modern compensation evangelist at PayScale.