A volatile economic environment coupled with an intensely competitive labor market has many organizations revisiting their total rewards programs and practices to ensure they effectively attract, retain, engage and reward the critical talent required for ongoing business success.
With employees demanding a fair relationship between pay and performance, organizations are reconsidering their business and human capital strategies to creatively differentiate their value proposition. Robust market data can support a measured response to the continuously evolving market and help you drive employee engagement, optimize rewards spend and anticipate emerging market trends.
Here are five ways market data can help you maximize your pay and HR programs.
Align your pay strategy with your business strategy
Employee salary is one of the largest and most valuable investments for any organization. As businesses continue adapting to new ways of working, they also have had to consider new competitors for the same talent and address the challenges of paying for hot and high-demand jobs.
With the right compensation strategy, an organization can attract and retain talent to drive profitable growth. Pay plans can be designed, implemented and administered differently depending on business objectives, but they must be built purposefully and aligned with organizational goals, cultures, values and overall business strategy to succeed. The consequences of getting this wrong can be significant, leading to lower employee engagement and productivity, a gap in critical talent or even difficulty with sustained profitability.
Using salary benchmarking data is a critical component for crafting a successful rewards strategy that is aligned with the business strategy and financial long-range plans. It supports informed decision-making and ensures your organization is investing wisely and in line with the latest market practices.
Reward your talent competitively
As organizations consider changes to their rewards and compensation strategy, they are taking measures to understand the diverse needs of their talent while remaining focused on getting work done. They are asking themselves:
- How do we compete and maintain our market position?
- What is the right balance between fixed and variable pay?
- Do we have the right rewards packages for our employees now and for the future?
To ensure your organization is paying competitively, analyze:
- Peers or types of organizations competing for the same talent, considering industry and organization size
- Competitiveness of various reward components, including base pay, short- and long-term incentives and benefits
- Geographic area of the talent pool, particularly in light of the global increase in remote and hybrid work arrangements
- Organizational needs for specialized skills
Review the relative market positioning of the total rewards package for your entire population, as well as roles critical to the future success of the organization, such as frontline workers and digital talent. It is crucial to understand not only the market value of targeted roles, but also their potential for growth vis-à-vis the changing business environment.
Look at data sources that provide comprehensive insights on incentive plan design, performance metrics and rewards administration policies across various industries and countries.
Optimize spend and build flexibility into your compensation strategy
With corporate pressure to drive sustainable performance and disclose progress on the Environmental, Social and Governance (ESG) agenda, organizations have been compelled to future-proof their rewards programs. Compensation planning is about more than financial metrics, it is about optimizing spend and building flexibility into your rewards programs.
Pay plan designs need to be more agile and capable of readily responding to constant changes in workforce demands and market conditions. Many organizations are recognizing a need to create a culture of flexibility – not only in new ways of working, but more so through fair and equitable rewards and talent-nurturing programs that lead to a superior employee experience.
In building a future-focused compensation strategy, organizations need to take a holistic approach to integrating employee experience with organization performance benchmarks for assessing sustainable performance, including:
- Market competitiveness
- Fairness and diversity metrics, including pay equity, career equity, or benefits equity
- Prevalence of ESG metrics in incentive plans and their total weighting
- Skill premiums, incidence and gaps
- Employee satisfaction, including retention and turnover rates, and absenteeism
As organizations traverse this modernization journey, they need to consistently review their internal metrics as well as benchmark and track their progress against competitors, with an aim to achieve recognition in the marketplace as a sustainable, employee-centric workplace.
Ensure compliance with legal requirements
As you assess your data needs, be mindful of the underlying legal requirements around data privacy and protection, including the General Data Protection Regulation (GDPR) and other local anti-trust regulations.
The digital regulatory landscape is constantly changing due to rapid technological advancements and geo-political shifts. Organizations need to use reliable vendors that consistently and thoroughly vet salary benchmark data and ensure strict compliance to global data privacy and anti-trust frameworks. Moreover, there are next-generation solutions that can host multiple data sources securely, helping organizations easily comply with data protection standards across various geographies.
If your organization operates in different locations and markets, you must also be well-versed in local employment practices, including mandatory and non-mandatory policies around benefits, taxation, recruitment and turnover. You need data sources that are constantly updated with market best practices and comprehensive descriptions of policy designs to comply with local legislation for HR programs, as well as compare global policies with country-level practices.
Stay up to date on rapidly changing market practices
Our recent Salary Budget Planning Report found that, globally, salary budgets for many organizations are surpassing those that we’ve seen in the past two decades. For example, salary budgets have remained stable at 3% for the past decade in the United States. A 1% to 1.5% jump (from roughly 3% to 4.5%) is a huge increase and, for most companies, represents hundreds of millions of dollars.
The last time salary budget averages hit 4.0% or more in the United States was before the financial crisis of 2008-2010 – more than 20 years since we’ve seen increases this high. More than 60% of organizations have said that their total compensation spend increases in 2022 were comparable to 2021. However, to retain talent, organizations need multiple tools to keep employees and pay is only one of them. Other tools range from improving the employee experience to putting a broader emphasis on diversity, equity and inclusion or introducing more workplace flexibility. Additionally, employers may need a more targeted approach to retain specific employee groups by offering retention bonuses or spot awards, or even adjusting salary ranges more aggressively.
An ongoing topic in compensation is restructuring pay for a distributed workforce. In fact, 67% of employers are prioritizing workplace flexibility to improve the employee experience. This opens questions around location-based components of pay programs such as geographic differentials and commuter allowances, and new types of incentives such as subsidies for telecommuting expenses and flexible benefits.
Staying up to date with market data amid continuously evolving circumstances helps you to discern temporary versus permanent adjustments to meet new market realities. Leveraging the research to proactively make fair and competitive pay decisions can also help prevent actions that may unintentionally damage employee morale and employer reputation in the long run.
What do rewards specialists need to do?
Four actions to keep in mind:
- Stay attuned to rapidly changing market trends in work and rewards
- Use salary benchmarking data to understand the practices that drive employee engagement, optimize rewards spend in each country and anticipate emerging research findings and trends
- Participate in salary, HR practices and benefit design practices surveys to ensure continuity in the data and stability in the year over year results
- Habitually turn to salary benchmarking data for those crucial moments when you need to understand market best practice