5 Compensation Trends HR Leaders Need to Know

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6 Compensation Trends HR Leaders Need to Know

With the war for talent in full-effect, it’s important to look more deeply into how compensation factors play in an organization’s ability to attract, engage, and retain top talent. Support your people strategy and stay competitive by keeping up with compensation trends.

1. Pay to Retain

Compensation remains a key factor for employees considering a job change. While many factors such as alignment with an organization’s mission and the ability to make meaningful contributions help retain employees, most will leave for a comparable job with greater pay.

Pay competitiveness has never been more important, and employers are wise to make certain their compensation strategy is properly aligned with business and employee needs, and to keep a close watch on market compensation trends and changes. Historically low unemployment and long-standing small salary increases have created an environment ripe for employee movement. 

2. Pay Transparency

Gone are the days where sharing your personal pay information with co-workers is considered taboo. It’s safe to assume your employees are discussing their compensation with one another. Federal pay transparency legislation was passed in January 2016 that prohibits federal contractors and subcontractors from discharging or otherwise discriminating against their employees and job applicants for discussing, disclosing, or inquiring about compensation. Since that time, related and similar state pay transparency legislation has been passed in 16 states.

While this supports compensation best practices, pay transparency makes it critical to have properly designed, market competitive, and internally equitable compensation programs, and to communicate these programs effectively within your organization.  

3. Increase in Variable Pay Programs

The use of variable pay programs is up significantly while base pay increases remain flat at 3% annually.  According to the WorldatWork 2017-2018 Salary Budget Survey report, the percentage of organizations using variable pay rose to 85 percent in 2017.

Variable pay has always been an excellent tool that when designed properly drives desired employee behaviors and business results. Because plan goals are typically modified each year to reflect business objectives, variable pay remains a flexible and effective way to directly align pay and performance.  

Kerry Chou, a WorldatWork senior practice leader, noted to SHRM that, "employees are still seeing increases in pay through improved variable pay plan payouts,” despite base pay increases remaining stagnant in order for organizations to maintain a handle on fixed costs.

4. Keep Track of Hot Job Pay Growth

For the past many years, salary increases have stagnated at around 3% for most organizations. While this 3% figure is also predicted for 2018, there are many in-demand jobs such as IT developers and in artificial intelligence where pay is growing much more quickly. It’s important to watch pay trends for these “hot jobs” to ensure compensation keeps pace with the fast-growing market.  

 Sources of hot job trends include the Department of Labor and the Bureau of Labor statistics who release and publish their findings about fastest growing jobs and predictions of in-demand occupations such as the 2016-2026 Employment Projections and Occupational Outlook Handbook and the Women’s Bureau’s In-Demand, Higher Paying Occupations Projections.

ERC’s Senior Consultant, Compensation & Benefits, Sue Bailey, notes that “there should also be greater emphasis and significant differentiation in base pay increases for jobs that bring greater value to the business and for hot skill jobs.”

5. Compensation Training on the Rise

Studies have shown that most employers don’t believe their managers have enough competence around the organization’s compensation strategy to have meaningful or accurate communication with employees. Effective compensation training and documentation that communicates your pay strategy and practices, compensation data sources, target pay philosophy, and salary increase programs are critical to manager and employee understanding and support pay transparency efforts.

As Mollie Lombardi from Aptitude Research Partners notes, “we ask [managers] to be the key translation point between business strategy and day-to-day employee activity.” In compensation, this often means asking managers to do the heavy lifting around communicating comp strategy to the organization. Successful compensation professionals will look to close existing gaps in managers’ comp knowledge and their ability to effectively communicate about pay in 2018.”

ERC offers compensation and benefits consulting services including market pricing, total rewards strategy, and more.

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