The growing complexity of compensation strategies

As employers come under increasing pressure to boost pay for performance and employ fair pay strategies in the workplace, they’re rethinking the programs they already have in place, according to a new survey from Willis Towers Watson.

Its “2018 Getting Compensation Right Survey” reveals that a number of factors are leading bosses to make or consider changes to their programs. While cost is the top-cited factor, at 71 percent, also affecting those decisions are manager feedback (63 percent), the changing marketplace (61 percent) and feedback from employees (59 percent).

“Getting compensation right is becoming increasingly important as employers look to drive higher levels of performance, attract and retain talent, and make fair pay decisions,” Sandra McLellan, North America practice leader, Rewards, Willis Towers Watson, says in a statement.

Related: Compensation or validation: which matters more to employees?

McLellan adds, “Decisions around pay, however, are becoming more complex, and many employers say their base pay and short-term incentive programs are falling short of expectations. Not surprisingly, changes to these and other related programs are on the horizon.”

Yet the stakes are high. Stacey Rapacki senior director at Talent & Rewards says, “Employers are focused on getting compensation right at a time in which they are balancing the needs of multiple stakeholders—employees, customers, investors, regulators. Employers need to focus on assessing rewards, putting the right tools/technology in place and taking action to address shortcomings in their pay programs—in particular for critical segments of their population (e.g., high performers, high potentials and those with critical skills). The implications for not taking action could include a negative impact on: employee engagement, regrettable turnover, company performance and both their company and employer brand.”

Several areas are slated for potential action, either this year or over the next three years, by employers. One such is change to base pay and annual incentive plans, with 45 percent planning on or considering redesigning annual incentive plans and 37 percent planning on or considering changing criteria for salary increases. Among those who don’t plan redesigns, most are changing the importance of the factors used to set base pay increases.

Then there’s heightened transparency for pay decisions, with 53 percent planning on or considering increasing the level of transparency around pay decisions—a challenge, says the report, as pay decisions become more complex.

The addition of new technology in the pay decision process is aimed at supporting pay decisions. Currently, only 45 percent of employers use software beyond spreadsheets to implement pay programs, and 52 percent plan to or are considering introducing new technology.

When it comes to performance management, 40 percent are planning on or considering changing its focus so that it includes future potential and the possession of skills needed to drive the business in the future. Still, few organizations plan to scrap performance ratings; although 13 percent have already done so, only 4 percent plan to do so this year.

Recognition programs appeal to employers on tight budgets as immediate and personalized rewards, with 53 percent of bosses planning on either adding or considering the addition of such a program this year.

Employers give themselves high marks, according to the report, on fair pay—and although nearly two thirds of respondents do have formal processes in place across a range of areas, including annual incentives (64 percent), hiring decisions (63 percent), starting salaries (62 percent) and base pay increases (62 percent), 60 percent still plan to take some action this year to prevent bias in hiring and pay decisions.

For instance, 44 percent plan on or are considering reevaluating their recruitment and promotion processes, while 42 percent are contemplating a gender pay or pay equity diagnostic; 33 percent are considering a boost in communication of policies and benefits that promote an inclusive culture. They’re also considering other types of programs to support creating an inclusive and diverse workforce with 45 percent having established or supporting internal networks and 44 percent looking at better flexible work arrangements.

“Employers contending with fair pay and gender gap issues should conduct a gender pay equity review, which can help them better understand whether they have fair pay issues, where they exist, and their underlying causes,” Mark Reid, global leader, executive compensation, Willis Towers Watson, says, adding, “As more organizations define what fairness, inclusion and diversity mean to them, today’s reward leaders must understand how to tangibly impact this agenda through reward program design and delivery.”