According to a report released on October 23 by financial services firm WTW, while employees rank pay as the top reason for joining and staying with a company, only about half of surveyed employers believe they are effectively delivering on their pay programs. This disconnect is attributed to several factors affecting the workplace over recent years, including talent shortages, generational shifts, new work models, the global pandemic, and high inflation. The report also highlights that ineffective communication contributes to the issue, as fewer than one in four of the nearly 1,900 companies surveyed feel they effectively explain how employee pay is determined.
Lori Wisper, managing director and work and rewards global solutions leader at WTW, noted that organizations have struggled to focus on the key factors driving pay program effectiveness due to recent labor market dynamics. The WTW report identifies six core objectives that are crucial for enhancing pay program effectiveness: attracting employees, retaining talent, ensuring fair internal compensation, providing competitive pay, aligning compensation with business strategy, and rewarding performance.
As the economy improves and labor market pressures ease, Wisper suggests that companies should adapt their strategies to address the factors influencing pay program effectiveness. One significant issue identified in the report is salary compression, which over half of employers acknowledge as a problem, with many expecting it to continue affecting their organizations in the coming years.
To enhance pay program effectiveness, Wisper advises companies to start by updating their compensation philosophy, which is essential for retaining key talent, improving employee productivity, and boosting financial performance. The report indicates that companies that have revised their compensation philosophy in the past five years did so primarily to attract and retain employees, enhance the employee experience, and increase pay transparency, among other reasons.
In summary, the WTW report underscores the need for employers to bridge the gap between employee expectations regarding compensation and the effectiveness of their pay programs. By addressing salary compression and refining their compensation philosophies, companies can improve employee retention, enhance productivity, and align their pay structures with overall business objectives.
