Evaluate Pay Issues as Talent Market Heats Up

Updating pay systems and policies can help businesses thrive in the new economy

By Stephen Miller, CEBS Mar 16, 2015

Sixty-three percent of employers recently cited “retaining top employees” as their primary compensation objective. But 57 percent don’t train managers on how to speak with employees about their pay, even though 38 percent are not very confident in their managers’ ability to perform this task, while another 45 percent report being only somewhat confident, according to the 2015 Compensation Best Practices Report from PayScale, a provider of on-demand compensation data and software.

“The majority of companies plan to grow in size and offer salary raises in 2015, but these businesses face more pressure than ever to attract and retain the right people,” according to the report. “Increasingly, a company’s ability to get compensation right is a prerequisite for achieving its growth projections.”

Survey data for the report was collected in November and December 2014 from 5,500 business leaders at companies of all sizes, mostly in North America and representing a large cross section of industries. Based on these findings, the report forecasts that in 2015:

Companies will remain worried about retention. Only a handful (7 percent), however, will increase wages as a retention strategy. Instead, most employers (57 percent) will continue to primarily link pay increases to merit and focus on development and learning opportunities (60 percent) as the means to retain the best and brightest.

Wages will continue to slowly thaw for most positions. Overall, 89 percent of employers plan to give raises in 2015; among these companies, 85 percent expect the average increase to fall from just above 0 to below 5 percent. Bonuses remain a popular option for many employers, with 43 percent reporting a bigger bonus budget for 2015 than in 2014.

Sourcing for qualified workers will remain competitive. Overall, half of all employers consider less than 20 percent of their positions to be competitive. However, those in the information, media and telecommunications industry would place that percentage at 30 percent, and those in professional, scientific and tech services would place it at 37 percent.

Increasing their minimum wage will be a compensation strategy. Nearly 21 percent of employers expect to increase their lowest-paid wage (often the federal or state minumum wage) as part of a compensation strategy for 2015. Manufacturing (26 percent) and health care/social assistance (21 percent) are more likely to raise the minimum wage than information, media and telecommunications (16 percent), finance and insurance (12 percent), and professional, scientific and tech services (11 percent).

Transparent wage policies will become more widespread. While 43 percent of employers say they don’t have a transparent wage policy and aren’t working on one, 40 percent of employers either already have one (24 percent), or “are working on” (16 percent) one. Large companies are slightly more likely to either have a transparent wage policy or to be working on one—47 percent of large companies vs. 42 percent and 35 percent of medium and small companies, respectively. (“Transparency” as used here doesn’t imply revealing employees’ wages; it more generally refers to making pay ranges public and sharing how they are set and adjusted.)

HR technology will be increasingly important. About 25 percent of companies expect to make a performance management system their next software purchase, while nearly 19 percent of employers plan to purchase a new payroll system. Others will begin experimenting with software systems for electronic applicant tracking (13 percent), human capital management (10 percent), workforce analytics (9 percent), compensation, (9 percent), employee engagement (9 percent), and social recruiting (7 percent).

HR and finance will remain independent. When asked whether HR should report to finance, 64 percent of respondents said “no.” Another 12 percent said they weren’t sure.

A ‘Play It by Ear’ Approach

“Retention remains a top worry for the third year in a row, as employers feel challenged to keep top performers in an increasingly competitive talent market,” the report found. As more employees quit to join other companies in the pursuit of higher compensation, “employers are struggling to fill positions—particularly for highly trained employees—citing a lack of qualified applicants.”

Even with these challenges, “compensation management remains more of a black art than a science at most organizations,” the report states. “Nearly a third of companies don’t regularly perform market and compensation analysis to understand the changing dynamics of their respective talent markets, many are dissatisfied with their data, and most do not train managers to have tough conversations with employees about compensation. The underlying tenet: companies need to become much more mindful about getting pay right if they expect to attract and retain the employees who are crucial to their business.”

"Even in our age of data overload, many businesses still take a ‘play it by ear’ approach when it comes to talent management,” Michael Moon, human capital management research director at Aberdeen Group, a business research firm, told PayScale. “However, these results show that companies need to get very serious, very quickly about retention and compensation by adopting modern technologies and approaches if they want their businesses to not only survive, but thrive in the new economy.”

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

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