Compensation Administration, Compensation Planning

Surprising Statistics May Shape 2017 Compensation Programs

The pursuit of the right talent continues to be highly competitive and, according to the latest research from PayScale, that pursuit is shaping compensation programs and strategies. In fact, PayScale’s 2017 Compensation Best Practices Report (CBPR) reveals a shift in strategy, as well as a gap between the perceptions of employees and employers with regard to pay.

2017 compensation

The 2017 research involved 7,700 executives, line of business managers, HR leaders and compensation practitioners at a variety of organizations across sizes and industries, public and private. Eighteen percent of respondents were categorized as top-performing—those who are number one in their industry and met or exceeded their revenue goals in 2016.

Employer/Employee Relationship and Transparency

Compensation practices are increasingly being used as a way to cement relationships with employees. Especially in jobs that are in high demand, employees know they can shop around for a position with another employer, and that they are likely to secure one. Successful companies need to give them a reason to stay. Deeper engagement with employees is key, and it can arise through clear and effective communication, especially around pay.

“Our most recent research shows that many companies are moving away from pay as a transactional experience that has historically been shrouded in secrecy,” said Mike Metzger, President and CEO at PayScale. “We’re also seeing that ’how’ a company pays is really as important as ‘what’ a company pays its employees. Compensation policies reflect the culture at the 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 impact the bottom line.”

PayScale says compensation strategy tends to be fluid from year to year, evolving as the workforce and competitive landscape change. Some of the modern compensation practices companies are using to stay ahead of the curve are:

  • Providing a total compensation statement. Over half (53%) of top-performing companies in the current survey did so, compared to 38% of typical companies.
  • Changing their compensation strategies to accommodate Millennials. One third (33%) of top-performers report doing this while 23% of typical companies do.
  • Changing pay strategy as a result of employee engagement survey feedback–32% of top-performing companies said they’ve done this, compared to 24% of typical companies.
  • Compensating differently for competitive jobs. This is a practice of 56% of top performers and 50% of typical companies.

Perceptions Differ from Employer to Employee

Differences in perspective are apparent in the PayScale survey. Forty-four percent of employers responding to the survey said their employees are paid fairly, yet just 22% of employees said the same. This difference, which PayScale calls the Corporate Chasm, extends to other, albeit similar, areas. When asked whether or not employees feel like they are appreciated at work, 64% of employers said yes, compared to 45% of employees.

Communication and transparency questions also revealed differences. Sixty-three percent of employers agree with the statement, “There is frequent, two-way communication between managers and employees.” At the same time, 55% of employees felt that way. Among employer/respondents, 31% said their company’s pay process is transparent, but only 23% of employees said the same.

Transparency and good communication are among the keys to maintaining positive employer/employee relationships. That perception is likely at the root of a goal expressed by 49% of the organizations responding to the survey. Forty-nine percent of them say they are aiming for pay transparency in 2017, sharing more information with employees about philosophy, practices, and more.

“Companies are always looking to get more returns from their talent investments and drive deeper employee engagement,” said William Tincup, president of Recruiting Daily. “I’ve found that managers who are committed to building open and transparent relationships with their employees are much more likely to see an increase in job satisfaction. The PayScale research is compelling because it shows that an honest compensation dialogue can dramatically improve engagement and the only cost to the company is a manager’s time.”

Transparency, Yes; But Money Helps, Too

But communication is not the only factor in the pursuit and retention of talent. Money—cash money—is also important, and perhaps more so today than it was in earlier years of the survey. In the survey, PayScale makes this bold claim: “2016 marks the return of cash.”

The statement is based on their findings that the popularity of the typical 3% raise may be fading. Thirty-four percent of organizations say the highest base pay increase they gave to an employee was more than 10% for the year, and 11% of them reported an average increase over 5%.

“While we don’t know if this signals the death of the 3% raise completely,” says the report, “it may well indicate that more companies understand the importance of being strategic about their compensation execution. Companies who don’t pay competitively, and who don’t innovate on their pay practices, risk losing the war for talent.”

Which Skills Are Lacking? Surprise!

As they search for the best and brightest to staff those tough-to-fill jobs in their organizations, companies look for certain skills and competencies. We’ve all heard that it’s the STEM skills—science, technology, engineering and math—which are the most in-demand.

Yet, in asking employers about which skills were most lacking among incoming employees in 2016, PayScale learned something surprising: soft skills, like communication, attention to detail, and critical thinking topped the list. Perhaps that’s part of the reason for a slight drop in the number of companies reporting a skills gap this year (33%) compared to last year (35%). We may have to wait for future surveys to draw real conclusions.

Prognostications

Based on their current research, PayScale makes some predictions for pay programs in 2017. Some of the challenges are similar to what we’ve seen before; some are new. Finding and growing great talent tops the list, followed by employee retention and engagement. This stems from defections on both ends of the age/generation spectrum. Millennials don’t tend to stay in one place very long, and this is happening at the same time the Baby Boomers are feeling more financially ready and able to retire.