In a climate where discussions about recruitment challenges, talent shortages and shifting competitive pressures are common, organizations across a range of industries are shifting their pay practices, including a more strategic focus on how pay raises are determined.
PayScale’s 2017 Compensation Best Practices Report raises a host of interesting issues along these lines, and offers insights into the pay strategies of companies large and small.
Compensation is culture, the report stresses, and transparency makes it work. Too often, companies fail to communicate effectively to employees about their pay practices. As the report notes in its executive summary: “If your employees don’t know that you source data carefully; if they don’t know that you have built a market-based pay structure; if they don’t know that you target the 65th percentile for most jobs, how can you get credit for those choices? You can’t.” The need for effective communication is a thread that runs throughout the report as a means of ensuring that compensation drives the desired culture.
There’s a chasm between the perspectives of employers, their HR leaders, and employees—probably not too surprising if you consider the different perspectives these groups have and the different interests they serve. For instance, while 44% of employers indicated that their employees are well paid, only 20% of employees thought the same.
And truthfully, 44% isn’t such an impressive statistic from the employer perspective either, particularly in an economy that seems to be rebounding and an employment climate marked by increasingly competitive and hard-to-find talent.
Other areas where a gap exists between employer and employee perspectives:
- 64% of employers say their employees are appreciated at work; only 45% of employees agreed.
- 31% of employers say they practice pay transparency; only 23% of employees said the same.
Gaps also exist between small and very large organizations in terms of how compensation is determined, approved and communicated, with HR playing a bigger role in very large organizations (54 percent of comp teams report to the CHRO), than in small organizations (6 percent of comp teams report to the CHRO).
Interestingly, though, smaller organizations were more likely than any other size organization to give pay increases of more than 3 percent:
- Small companies–60%;
- Mid-sized companies–57 percent; and
- Large companies–45 percent.
Yet the trend reverses for companies giving increases of more than 10 percent with larger companies topping the list. As the report notes, though, the days of the standard 3 percent increase seem to be going by the wayside. As companies compete more to attract top talent and as their bottom lines and budgets expand, they’re allocating more money to pay increases than they have over the past several years.
Other Significant Shifts
The size of pay increases isn’t the only significant shift that the PayScale study brings to light. HR leaders are facing a number of issues that require them to think differently about compensation. For example:
- While pay structure used to be evaluated every few years, or so, respondents now say they’re reviewing their pay structures more often, with 28 percent having adjusted their grades or ranges within the past six months, according to the study.
- M&A is on the move, particularly among very large organizations where 42 percent said they had been involved in M&A activity in 2016. The biggest challenge here? Merging, or managing, separate comp plans. XpertHR offers guidance for HR practitioners involved in M&A.
- Variable pay is becoming more prevalent, with 74 percent of responding organizations indicating that they offer some form of variable pay, such as performance-based compensation or commissions. The practice is even more prevalent among the top-performing companies (82 percent).
HR leaders are also being challenged by the uncertain political climate with decisions related to the Affordable Care Act, the Fair Labor Standards Act and others still up in the air. It’s a challenging time for HR leaders, no doubt, but it’s also a time that lends itself to strategic opportunity.
Being Strategic About Compensation Considerations
HR leaders know, or should know, that the companies they serve are operating in an increasingly competitive market where both customers and employees are becoming harder to find. They know, or should know, that total compensation costs (pay and benefits) should be managed to maximize employee engagement. They know, or should know, that communication is key: when employees don’t understand the value of their compensation plan, a lot of time, effort and expense goes to waste.
And yet, even at the enterprise level, only 51 percent of employers provide total compensation statements to employees (only 38 percent of small companies, 40 percent of mid-size and 42 percent of large companies do).
There are opportunities for HR leaders to have an impact here and XpertHR has the resources to support them in a strategic role. For instance, our webinar on Winning With Analytics in Talent Acquisition provides insights into how data can be used to support decisions and gain credibility.
The PayScale report provides some interesting food for thought—and a good benchmark against which to measure your own situation.
- What do senior leaders in your organization think about your pay practices?
- What do your HR leaders think?
- What do employees think?
- What are the gaps and the communication opportunities that could be addressed to strengthen your culture?
If comp truly is culture, as PayScale suggests, using a compensation perception assessment as a starting point to drill down into opportunities for improvement can be the first step toward giving your culture a boost.
Then, take some steps to ensure that your compensation strategy is aligned with your desired culture, communicated effectively and evaluated frequently.
If you’ve been looking for an opportunity to demonstrate the strategic value you can provide your organization, this just may be the answer.