Trends in Compensation for Forward Thinking Organizations

Salary and Employee Compensation Thinking Is Shift Underway

Business meeting at a conference table to discuss compensation
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How to research salary, salary calculators, salary surveys, salary comparisons, basically, all things salary, online, is one of the most frequent requests for information received by the Society for Human Resource Management (SHRM). It makes sense when you consider the importance of salary to attract talented people, retain key employees, and maintain an excited, motivated workforce.

Given the shifts occurring in attitudes and practices about salary and compensation, this is not surprising. Organizations are struggling to keep up with changes in salary and compensation thinking.

Gone are the days when organizations gave equivalent increases to all organization members. These salary increases, in the one percent to five percent range, sent the wrong message to underperformers.

They left organizations with too small of a budget to adequately reward their top performers. While many companies still use this as their salary criteria, forward-thinking organizations are thinking about salary and compensation in a very different way.

According to an article on the SHRM website, to get the attention of your better performing staff members, you must offer a variable pay rate of seven to eight percent, in addition to their base pay.

A system that rewards better performers cannot reward all staff members alike. In addition to sending the wrong message, your pool of money is not unlimited. You must use your compensation as one of your most important communication tools, to send a message about your organization’s expectations and goal achievement rewards.

According to Kiplinger, for 2017, "Companies are forecasting 3% increases, similar to years past. But how that budget is spent may vary by person. Employees with the highest possible rating could see increases in the range of 4.5% to 5%, while low performers get an increase between 0.7% and 1%. Bonuses for salaried employees are projected to be 11.6% of pay, on average, with rewards for special projects or onetime achievements set at 5.6%, on average."

Current Compensation Thinking

Current thinking about salary and compensation includes the following components.

  • Organizations need to develop a compensation philosophy and direction in writing that is reviewed by the Board of Directors and agreed to by your managers. According to SHRM, a typical compensation philosophy "might state that the organization sets target pay rates at the 50th percentile of the competitive market, provides incentives for meeting stretch goals that result in pay delivery at the 75th percentile, and provides long-term incentives in the form of full-value stock options to senior professionals and managers to align objectives with those of shareholders."
  • Particularly in an entrepreneurial, market-driven company, the compensation philosophy needs to include a method for grouping similar jobs for purposes of broad banding, since promotional opportunities are limited.
  • It should include a responsible, measurement system for awarding variable pay. Place less emphasis on increasing base pay, and more emphasis on distributing gains via bonuses that reward actual goal attainment.
  • Goal attainment should be rewarded for both individual and organizational goal achievement to foster teamwork and eliminate the lone ranger mentality.
  • Real goal achievement is attached to outcomes or deliverables that are measurable or offer a shared picture of what success looks like. They should not reward checking items off on a to-do list.
  • As the cost of benefits has increased, their place in a total compensation package has increased in importance. Benefits are a major factor in your ability to attract and retain superior employees. Shifting the costs of some benefits to employees is a last-option scenario.

Quality of Work Life Rewards

The budget for salary, compensation, and benefits is not unlimited in most organizations. Thus, in addition to traditional increases to base pay, and variable rewards, such as bonuses, profit-sharing, and gain-sharing, it is recommended that you pay attention to the quality of work-life rewards. These can include the following.

  • Payment of a one-time, lump-sum payment for a result or outcome that deserves recognition.
  • Payment of smaller rewards with thank you notes for above the call of duty contributions. These are not necessarily tied to an achieved result, but they are contributions, that when emphasized, increase the probability of results.
  • Increased emphasis on additional benefits such as prepaid legal assistance, educational assistance, and vision insurance.
  • Increased opportunity for flexible work arrangements and job-sharing.
  • An organizational emphasis on the training and development of employees.
  • Clear career paths, so employees see opportunities within your organization.

In this last category, quality of work-life rewards, your imagination is your only limitation. The key is to ensure fairness and consistency for similarly performing and contributing people, whenever possible. I encourage you to do even more for those employees who measurably contribute more to your organization’s success. (Of course, this opens up a second philosophical debate about how and whether your organization provides an equal opportunity for all employees to excel.)

In summary, organizations are moving toward salary and compensation systems that emphasize flexibility, goal achievement, and variable pay based on performance, and less emphasis on increases to base pay. They are using bonuses based on profit and accomplishment to add to employee compensation.

The rising cost of benefits is causing a rethinking of their place in the compensation system. Forward-thinking organizations are emphasizing the quality of work-life rewards and recognition to add to the value of the total compensation package.

Researching Salary and Worker Compensation Online

Online salary information is often unreliable. It frequently averages too many variables into one range. The salary ranges cover too many industries, nationally or internationally, and lump all of the data into one range.

You may find the following websites useful.

  • Job Star Central
  • U.S. and Canadian Salary Surveys Online

You will also find salary information at professional associations such as the Society for Human Resource Management and others, but usually available only to members.