As 2012 is creeping up, many employers are now in budgeting mode, with compensation being a major expense under review. A recent compensation survey by Buck Consultants shows that retaining top talent is the No. 1 employee engagement goal in 2012, which suggests employers must find ways to remain competitive.
Of course, offering salary increases is necessary for talent retention, but this is especially true for high performers, says Ken Abosch, compensation group leader for Aon Hewitt. In a down economy, holding onto top performers is more important than ever, and those top performers won't be satisfied with stagnant incentives. The job market may be bleak, but top performers always have other opportunities, regardless of the economy.
"It's absolutely essential that an organization hold onto its top performers," Abosch says. "If for no other reason, this should be done because we've seen that the economic value for a high performer is often two times greater than the economic value of an average performer. The value is also probably three to four times greater than a below-average performer, so when an organization watches a high performer walk out the door that's not one employee. That's basically the impact of two or three employees leaving the organization."
Recommended For You
Given the importance of top performers, 80 percent of employers are practicing pay-for-performance incentives, according to the Buck Consultants survey. The survey shows that top performers receive an average pay increase of 4.3 percent while mid-level performers receive an average pay increase of 2.9 percent, and low performers are seeing an average pay increase of 1.5 percent.
"You need to have a core talent group in a bad economy, but if you're an average performer or below-average performer, you're going to be hurt the most," says Stephen Mork, principal of compensation practice for Buck Consultants. "If you look at compensation three or four years ago, there might have been a lot less discrepancy in your bonus payout if you were a mid-level performer, versus a high-level performer, but now there's going to be greater distance in what kind of payouts you'll receive."
Besides salary increases, more employers are also looking to offer workers variable pay incentives, Abosch says. According to recent survey by Aon Hewitt, 92 percent of employers now offer variable pay incentives, compared to 78 percent of employers in 2005. Although many employees tend to focus on their base pay, variable pay can be particularly lucrative, especially among the top performers.
"Very often the focus is only on salaries, but there's more total earning opportunity today for employees with bonuses than there was 20 years ago," Abosch says. "Back then, bonuses weren't readily available for employees; it was really something reserved for executives. Variable pay is now actually increasing in the level of spending and also in the degree of importance as it relates to an employee's overall compensation growth opportunity."
Mork is also seeing more employers offer nonfinancial incentives as a way to retain employees. In fact, salary increases aren't even the most widely use method of retaining employees, the Buck survey shows. Sixty-four percent of respondents are relying on career development opportunities as the top retention method while 43 percent of respondents are offering market pay adjustments.
"It's interesting because the survey shows that the No. 1 goal for employers is to retain and attract employees for 2012, but the way they're mostly going to do that is based on nonfinancial measurements," Mork says.
Even if the economy improves in 2012, Mork doesn't expect to see sudden pay increases. After the economy tanked in 2008, the recovery has been inconsistent, and employers want to see a stronger improvement before the commit to larger pay increases. While salary increases are planned for 2012, it may still take some time before they are at prerecession levels.
"It's a very fragile economy, so I don't see any wild adjustments over a short period of time," Mork says. "I'd think the economy would have to be sustainable for a period of time before you see those larger increases return."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
