Total Rewards Trends for the Next Five Years

Compensation and benefits managers should look to HR analytics to balance employee retention and incentives to drive productivity and performance, according to Mercer senior partner Steve Gross.

A big factor affecting employee rewards in the future will be longer lifespans, said Gross, who presented a look into the shape of pay and benefits to come within the next five years and beyond at the 2015 WorldatWork Total Rewards Conference, held May 18-20 in Minneapolis.

“We are living longer, which will create greater pressure on retirement and social programs,” said Gross. This will put upward pressure on health care costs, and will also mean learning how to better manage five generations with varying concerns and priorities in the workforce.

For instance, “Millennials are looking for a convincing value proposition” or they’ll leave a company, Gross warned. A desired value proposition for this demographic typically includes line-of-sight career development pathways and an employer’s commitment to promote from within, with training and support to make that feasible.

In compensation, the trend of income growth divergence between the highest-paid talent (especially in the executive ranks) and everyone else will likely continue, resulting in lingering social unrest and pressure to increase the minimum wage and the wages of lower-paid workers. Since 1985, the average pay of a CEO in the U.S. (admittedly skewed by the biggest earners) rose 913 percent, while a typical machine operator’s pay increased 97 percent and an accountant’s pay rose 142 percent. “For unions, the new bargaining agenda in the U.S. calls for a living wage and corporate wealth-sharing,” Gross said.

At the same time, “pay raises will be increasingly driven by promotion, not base pay increases,” he said, and variable pay will continue to become a larger share of total compensation.

Among other trends, Gross foresees that:

• Pay won’t be secret anymore, with employees sharing what they earn on social media websites such as Glassdoor.com. HR will have to step up its game to explain pay philosophy, or else can expect to see employee engagement take a hit.

• Performance ratings will not disappear. Companies that claim to have done away with ratings in favor of regularly scheduled conversations between employees and their supervisors and written performance descriptions have “de facto ratings behind the scenes” used to determine incentive-based pay, Gross maintained, “which is less transparent and honest” than explicit ratings.

• Organizations will have more contingent workers and free-agent contractors, with a core of well-nurtured and highly trained workers viewed as crucial for success.

• Benefits will shift to exchange models with greater employee choice among a variety of benefit options. Employers may be less generous in their contributions, but this will be offset by the ability of employees to customize the package that best meets their individual and family needs.

• Employers will continue to struggle with the value of incentives, using “big data” analytics such as predictive modeling to hone-in on what best drives employee performance and overall profitability. Analytics will also allow employers to predict when key talent is preparing to leave—and then intervene.

• Rewards programs will be expressly designedand delivered to secure desired workforce outcomes in terms of retention, engagement, productivity and results.

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

Related SHRM Article:

Turn Compensation into an Operations Partner, SHRM Online Compensation, May 2015

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