New research from Willis Towers Watson finds that American employers feel the need to overhaul employee-compensation programs and have plans to increase transparency regarding their pay practices.
Among 374 U.S. employers, 45 percent are planning to redesign annual incentive plans and 37 percent are planning on updating criteria for salary increases. Additionally, 53 percent are considering increasing the level of transparency around compensation practices.
According to Stacey Rapacki, senior director of talent and rewards at Willis Towers Watson, the survey results weren’t surprising, but they did highlight three enduring issues that companies continue to struggle to resolve. First, companies are unable to obtain the necessary budgets to purposefully differentiate base pay for critical employees, such as strong performers or those with high potential.
Second, she says, employers continue to struggle to differentiate incentive payouts for top performers in years when their incentive plans aren’t fully funded. The results? Relatively flat pay-for-performance curves that could discourage “above and beyond discretionary efforts.”
Finally, Rapacki says that the impact of the changing regulatory environment in both the U.K. and the U.S. has driven companies to quickly act on gender-pay inequity.
“Conducting gender-pay and pay-equity diagnostics and addressing pay transparency, and the communication of programs and policies that promote an inclusive culture, has now become a top-of-mind topic for boards of directors,” says Rapacki.
Effective compensation and reward programs require several elements. First is a clear definition of the purpose of each element of a program.
Employers also need the ability to “to segment and differentiate pay for key segments of the population with a focus on the roles and functions that will deliver the most value, such as critically skilled employees and high potentials,” says Rapacki. “An effective program requires an investment in manager capabilities with training, tools and communications to help managers understand the purpose of the programs, how they’re intended to be administered and why pay decisions are made.”
The final element is aligning these programs to a company’s employee value proposition, HR strategy and company priorities, she adds.
Beyond these issues, the results present several HR-specific challenges, according to Rapacki.
She says HR must be able to make a business case for obtaining the required budget to truly differentiate and reward critical employee segments. Second, employers need to accept the implications of differentiating annual incentive payouts and of allocating incentive budgets to top performers and high-value talent segments (and away from other groups).
“Finally, as the need for transparency around pay programs and fair pay increases, employers must balance the complexity of these programs, the actions that they’re taking or have taken and how to develop a communication approach that’s both authentic and resonates with multiple stakeholders,” she says.
