Under pressure to ensure fair pay throughout the workplace, companies are starting to change employee compensation and performance management programs according to a recent survey, “2018 Getting Compensation Right,” by Willis Towers Watson.
“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,” said Sandra McLellan, North America practice leader, Rewards, Willis Towers Watson. “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.”
The survey revealed several factors are prompting employers to make or consider changes to their programs, including cost (71%), manager feedback (63%), changing marketplace (61%) and feedback from employees (59%).
Among the changes respondents are planning to make this year or considering over the next three years include:
Base pay and annual incentive plans: The changing nature of work and new skills requirements are fueling employers to reassess these programs. Forty-five percent are planning on or considering redesigning annual incentive plans; 37% are planning on or considering changing criteria for salary increases. Among employers not redesigning their programs, most are making changes to the importance of the factors used to set base pay increases.
Heightened pay decision transparency: More than half of respondents (53%) are planning on or considering increasing the level of transparency around pay decisions, a challenging task given the growing complexity of pay decisions.
New technology: Employers are recognizing the need for new technology to support pay decisions. Currently, fewer than half of employers (45%) are using some software beyond spreadsheets to implement their pay programs. Just over half (52%) are planning on or considering introducing new technology.
Refocused performance management: Employers are taking a more future-focused approach to managing performance. Forty percent are planning on or considering changing the focus of performance management to include future potential and possession of skills needed to drive the business in the future. Interestingly, few organizations are planning to scrap performance ratings. While 13% have already done so, only 4% plan to do so this year.
Recognition programs: These programs are appealing to employers with limited budgets and offer a way to provide on-the-spot personalized rewards. More than half (53%) are planning on or considering adding a recognition program.
The survey found that a majority of U.S. employers give themselves high marks when it comes to having formal processes in place to prevent bias or inconsistency in their hiring and pay decisions. Nearly two-thirds of respondents have established formal processes across a range of areas, including annual incentives (64%), hiring decisions, (63%), starting salaries (62%) and base pay increases (62%).
Despite high marks, 60% of U.S. employers are planning to take some action this year to prevent bias in hiring and pay decisions. Several areas are targeted for greater focus. More than four in 10 are planning on or considering reevaluating their recruitment and promotion processes (44%), conducting a gender pay or pay equity diagnostic (42%), and increasing communication of policies and benefits that promote an inclusive culture (33%). To support creating an inclusive and diverse workforce, companies are also looking to other types of programs. Nearly half have established or support internal networks (45%) and improved flexible work arrangements (44%).
“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,” said Mark Reid, global leader, executive compensation, Willis Towers Watson. “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.”