In response to competitive pressures to improve their pay-for-performance programs and to ensure fair pay throughout the workplace, U.S. employers have been making adjustments to their employee compensation and performance management programs, according to the results of a survey by human resources consultancy Willis Towers Watson.

The survey, which was conducted in April 2018, asked 1,949 employers worldwide, including 374 U.S. employers, about their compensation practices. The results showed that several factors are prompting employers to make or consider making changes to their programs, including cost (71%), manager feedback (63%), the changing marketplace (61%), and feedback from employees (59%).

The survey findings suggested that in particular, the changing nature of work and new skills requirements are spurring employers to reassess their compensation programs. When asked how they expect to manage their base pay and annual incentive plans in the coming year and over the next three years, 45% of respondents said they are planning to or are considering redesigning their annual incentive plans, and 37% indicated they are planning to or are considering changing the criteria for salary increases. Of the employers who reported no plans to redesign their programs, most said they are adjusting the importance of the factors used to set base pay increases.

The results further indicated that although the employers surveyed see achieving pay decision transparency as a challenging task given the increasing complexity surrounding pay decisions, more than half (53%) are planning to or are considering improving transparency around pay decisions.

In addition, the survey found that employers are recognizing the need for new technology to support pay decisions: while less than half of respondents (45%) indicated that they are using some form of software beyond spreadsheets to implement their pay programs, 52% said they are planning to or are considering introducing new technology.

When asked about their approaches to performance management, 40% of the employers polled said they are planning to or are considering changing the focus of their performance management strategy to include current and potential possession of the skills needed to drive the business in the future. By contrast, just 17% of respondents said they have eliminated performance ratings or plan to do so this year.

Moreover, the survey found that most of the U.S. employers surveyed report having formal processes in place to prevent bias or inconsistency in their hiring and pay decisions: nearly two-thirds of U.S. respondents indicated they have established formal processes across a range of areas, including annual incentives (64%), hiring decisions, (63%), starting salaries (62%) and base pay increases (62%).

Nonetheless, 60% of the U.S. respondents said they are planning to take some additional action this year to prevent bias in hiring and pay decisions. Of the U.S. employers surveyed, significant shares said they are planning to or are considering reevaluating their recruitment and promotion processes (44%), conducting a gender pay or pay equity diagnostic (42%), or increasing communication of policies and benefits that promote an inclusive culture (33%). The results also indicated that many U.S. employers are taking steps to support creating an inclusive and diverse workforce, with nearly half reporting that they have established or support internal networks (45%) or improved flexible work arrangements (44%).

From Benefit Trends Newsletter, Volume 61, Issue 7

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.