85% of Companies Targeted Market Median for Base Pay

Five years out from the end of the Great Recession, most organizations—85 percent—determined the value of employee jobs in 2014 using the market-pricing approach and targeting employee base salary at the 50th percentile (that is, not pushing wages up by offering above-average pay, which is often needed to attract and retain talent in a competitive job market).

In addition, 78 percent of employers targeted the market median for total cash (base plus short-term variable pay).

Those were among the findings in a January 2015 survey report, Compensation Programs and Practices, from WorldatWork, an association of total rewards professionals at mostly large North American companies. The survey was fielded among WorkdatWork members in the second half of 2014.

"Employers tend to largely assess the market value of jobs on an annual basis and address current market conditions on an as-needed basis,” Kerry Chou, WorldatWork senior practice leader, told SHRM Online. “Currently, the market isn’t compelling employers to accelerate wage growth in any significant way.”

Pay for Performance

The report shows pay for performance continuing to thrive, with 72 percent of respondents indicating they have a rating system with a performance score that is tied to pay increases.

In 2014, as in 2012 and 2010, moderate variation—meaning top performers received 1.5 times the average base pay increase—was the most typical variation in salary increase between average and top performers.

Base salary increases were typically determined for employees based on these criteria:

• Individual’s performance against job standards (71 percent of organizations).

• Individual’s performance against "management by objectives" or similar personal objectives (49 percent).

• Job position within a range (59 percent).

• Market value of the position (49 percent).

• Skill or competency acquisition (22 percent).

• Years of service (11 percent).

• Education/certification (10 percent).

• Everyone receives the same general increase (9 percent).

• Other (6 percent).

Among variable pay options, 82 percent of organizations use bonuses—the most frequently used variable pay plan.

For those organizations with multinational operations, 83 percent primarily or exclusively design variable pay programs at the corporate level, although 50 percent do allow for limited adaptation at the local level.

Communications

Another issue compensation professionals continue to struggle with is communication, the survey revealed. “While nearly all organizations have a compensation philosophy, 45 percent believe that most or all of their employees do not understand it,” Chou noted. Relatedly, 39 percent of respondents said they share minimal information with employees regarding how their individual salaries are determined.

Employee understanding of the organization’s compensation philosophy tends to be higher when there is greater differentiation in increases between average and top performers, the survey found.

Among other highlights from the survey:

• A majority (59 percent) of base salary structures for employees are still adjusted once a year, with 14 percent of companies adjusting their structures just once every two years, up by 5 percentage points from the previous two annual surveys.

• Most organizations (52 percent) indicated that salary structures are defined by geographic regions; job category/role ranked second at 44 percent, which is a notable increase from 23 percent in 2012.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.​