There are many factors influencing thoughts, plans and practices in employee pay today. Economic turbulence, the breathtaking pace of organizational change, a zigzagging talent market and the continued pressure to do more with less are just a few that come to mind.
Are the fundamentals of compensation changing in response to these influences - or are we tending to hold tight to the "tried and true"? To help us get our heads around these questions, WorldatWork recently published an updated study of Compensation Practices and Programs reflecting the input of about 1,000 compensation professionals gathered this past June and July. (Previous efforts in 2003 and 2010 provide some historical perspective.)
The survey report touches on a wide range of practices. Here are a few select findings that caught my eye, along with the musings they provoked.
An unwritten compensation philosophy generates little value. I can't help but smile when somebody tells me that their company does indeed have a compensation philosophy, but it isn't written down anywhere. Typically this means that leaders have not had a serious conversation about how they intend to pay people, much less any thoughtful dialogue about how compensation dollars should be spent given the organization's talent priorities. At best, it usually means that there is some level of implied agreement about paying people at market median. Study findings suggest that we may be finally wising up to this fact: 67% of respondents say that their company does have a written compensation philosophy, up from 61% in 2010. And, not surprisingly, the study confirms that an unwritten philosophy tends not to be understood by employees; 89% of those with a written philosophy believe that most or all employees understand it, while only 11% with an unwritten philosophy think this is true.
But are companies walking the philosophical talk? Survey findings show that some companies are falling short of their pay intent. While 86% of those responding say their organization targets market median for base salaries, only 67% are actually there in practice. A few of these (about 4%) indicate that they have overshot the mark; however, most of those who say that they are "off" (about 13%) are actually delivering salaries below the target level. My sense, as I am seeing this phenomenon not infrequently in my consulting work, is that this is at least partly a result of the no-to-low salary increase budgets of the past few years, causing some companies to fall behind market practices, particularly for more in-demand talent. Note that the same pattern seems to hold for total cash compensation, where 71% are targeting market median but only 54% are making that happen (and only about 2% of these are erring on the plus side).
Performance ratings and merit increases are not going away yet. The percent of respondents whose performance appraisal process culminates in a rating or score that is tied to salary increases has increased to 71% in 2012 from 65% in 2010. Ratingless performance systems appear to have dropped slightly in prevalence, to 11% in 2012 from 14% in 2010.
But making merit pay matter is proving no small challenge. A lot has been written about putting more muscle (differentiation) behind merit increases but, if anything, survey responses suggest little movement forward and even a bit of slippage. The percent of survey participants claiming either considerable or extreme variation (meaning increases for top performers are 2 or at least 3 times the average, respectively) has dropped from 32% in 2003 to 27% in 2010 to 25% in 2012.
The matrix is still the king of merit increase tools. Although no historic information is available, survey results show that 74% of respondents use a merit matrix. Interestingly, the vast majority of those employing this tool (69%) indicate that the matrix is used as a guide, and that managers have the discretion to deviate when appropriate.
Dynamic markets demand annual benchmarking. As the labor market becomes more and more uneven in its movement, companies are finding that market pricing (whether all jobs or only a set of benchmarks) must be an annual event. Survey responses show more organizations are moving to annual benchmarking (59% in 2012, up from 55% in 2010) and fewer are going with an "every other year" process (11% in 2012, down from 13% in 2010).
What are you seeing in the state of play of employee pay?
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations. She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time. Follow her on Twitter at @annbares.
Image courtesy of preparednesspro.com
ote that the same pattern seems to hold for total cash compensation
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