More than ever, companies are updating their compensation strategy and practice to build more trusting relationships with their workforce, emphasizing pay transparency and equity, according to the 2017 Compensation Best Practices Report from cloud compensation services company PayScale.
The 2017 Compensation Best Practices Report (CBPR) is based on data from 7,700 executives, line of business managers, human resource leaders and compensation practitioners, and reflects current attitudes about compensation, business growth, hiring and retention. The latest annual report shows a shift is underway at many companies as key talent markets are becoming increasingly competitive.
More specifically, organizations are looking closely at their pay policies and processes and trying to become more open and transparent around those with the intention of building more trusting relationships with employees and driving deeper engagement, says Mike Metzger, CEO and president, PayScale, in a statement about the research.
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Put your money where your mouth is
While that’s a great first step, the research shows what PayScale has dubbed a “corporate chasm” around compensation, as employers were more than twice as likely as employees to believe pay is already fair; 44 percent of employers say their employees are fairly paid, but only 20 percent of employees agree.
That’s a huge opportunity for organizations to put their money where their mouth is and further the dialogue around pay and pay transparency, says PayScale senior vice president Tim Low.
“We see an enormous opportunity for business leadership to raise their communication game around this issue. If you think you’re being transparent, but your workers don’t — or your workers are misunderstanding, and you’re not correcting that, you’re missing a chance to make that connection and improve trust, engagement and understanding. It’s not just what a company pays, it’s how they pay and how they communicate about it that has a major impact on culture, attitude and morale, engagement and performance,” Low says.
Employers can do even more to modernize their pay practices, such as increase pay transparency, use current market data to set pay and train managers to initiate open dialogue about pay so their employees feel valued and — ultimately — don’t look for greener pastures elsewhere, Low says.
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Now you see me …
The research shows that organizations have set their sights on achieving increased transparency over the next few years. Currently, 31 percent of organizations responding to the survey identify themselves as being transparent (a level three or greater on PayScale’s Pay Transparency Spectrum), and nearly half of all organizations aim to be transparent in 2017 (49 percent).
How transparent companies are in terms of pay varies depending on the unique factors that define each company and culture, Low says. It’s not realistic to believe that every company can be 100 percent transparent. PayScale’s pay transparency spectrum rates organizations on a scale of one to five with 1 being “not at all transparent” and 5 being “completely transparent,” he says.
“The pay transparency spectrum helps companies self-identify and calibrate where they are and where they want to be. Levels one and two are not very transparent. But, depending on certain factors that are unique to each company, Levels 3, 4 and 5 are all acceptable places to be when it comes to transparency,” he says.
Low says that not every organization can or should be a 5. That requires a very specific commitment to openness from management on down, as well as ongoing conversations around why certain people are paid what they are and how that’s calculated.
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The survey also revealed that 37 percent of respondents say they have a compensation strategy in place already, while 34 percent say they’re in the process of developing one. Low says those numbers are something of a surprise. “To me, those numbers are shockingly low. At larger organizations, we do see a higher percentage have already developed and implemented a strategy, which makes sense. But a lot of smaller organizations and companies haven’t taken the time to put this together, and that could be a major problem,” he says.
What ends up happening is that, as small organizations grow, compensation strategy can’t keep pace, and everything ends up haphazardly thrown together, resulting in confusion and, sometimes, resentment among colleagues. That doesn’t bode well for recruiting and retention, Low says.
“If you don’t have this at least sketched out from the beginning, then if you experience rapid growth, you’re in trouble. All of a sudden, you’ve got, say, 200 people working for you and you have no idea how to handle it. Then you either have to go back and start from scratch, or try to manage a bunch of random pay strategies — it’s not a good thing,” he says.
High-performance companies pay differently
For the second year in a row, the CBPR has included data on “high performing” companies; A top-performing company in the CBPR was one that met or exceeded its financial performance in the previous year and identified itself as the leader in its industry, Low says. And there are a few things high-performing companies do differently with regards to pay, the research showed. Top performing companies are more likely to pay higher rates for talent to fill their most competitive jobs — those that have greater impact on the bottom line, according to the research.
High performers also are more likely to devote time and resources to train managers to talk openly and honestly with employees about pay, and they are more likely to say that they pay their employees fairly; 52 percent of high-performing companies say they pay their employees fairly compared to 42 percent of “typical” companies, according to the research.
“The top performing companies make up 18 percent of total respondents to the survey. In addition to paying higher rates for certain positions and emphasizing communication around pay, these organizations are doing deeper market analysis to determine pay, and they’re doing it more often,” Low says. According to the research, while 53 percent of organizations have done a full market study within the past year, 47 percent reference market data for individual jobs more frequently than annually. Thirteen percent do so at least weekly and that number rises to 39 percent among enterprise organizations.
The emphasis on pay, fair pay, transparency and closing the communication chasm between employees and employers is likely to continue as companies continue to struggle with finding and retaining talent.
“How a company pays its employees is really as important as what a company pays its employees. Compensation policies reflect the culture at an organization. Employers who pay fairly for competitive positions and foster open dialogue around pay will build more trusting relationships with their employees that, in turn, will impact the bottom line,” says Mike Metzger, president and CEO at PayScale.