5 Ways Compensation Will Change in 2017

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Dec 23, 2016

As the economy continued to rebound in 2016, there was intense competition in many talent markets across a number of jobs and industries. All indicators show the financial landscape is poised to continue growing in 2017, so employers are now more focused than ever on retaining and attracting key people at their organizations to maximize the business opportunities. In fact, PayScale research found that retention was listed as a top concern by most businesses over the past year.

Compensation remains the driving factor in talent markets across the US. Here are five ways compensation practices will change to meet increasing talent demands in the coming year:

1. Executives will strategize about compensation – Discussions about pay will move into the boardroom as more employers consider how compensation can become a strategic lever to drive their business forward. The days of the company-wide annual three percent pay raise are over. Now, executives will discuss how to prioritize pay for those critical jobs or top employees they just can’t live without. At PayScale, we often say that fair isn’t necessarily equal which means employers need more sophisticated compensation management practices. Just because you have two engineers with the same title, it doesn’t mean you always pay them equally if one is delivering better results.

2. Transparent pay policies will be more common – More Payscale chart on top performing companiescompanies will adopt more transparent pay policies to lift the veil of secrecy around compensation. A survey of employers found that almost half of all top performing companies had a transparent pay culture where discussions around pay were encouraged. Other research shows that sharing market data with employees so they can better understand how their pay was determined builds more trust with and increases job satisfaction, making employees more likely to stay. Transparency is a growing trend which will increase in 2017, particularly as more millennials who don’t view salary discussions as taboo enter into management roles.

3. Companies will use compliance for a competitive advantage – As competition gets intense for those employees who can really impact the bottom line, businesses will want to ensure they are compliant at baseline. This means understanding where the company falls in relation to gender pay equity, paid leave, and minimum wage regulations, for example. With deeper insight about their compensation practices in relation to compliance, employers can then get really serious about being competitive in the market.

We saw this happen in 2016 as companies made plans for the proposed FLSA overtime rule. Even though a court halted implementation at the last minute, these companies felt they were in a much stronger position to retain their people because they knew how they were paying. As the incoming administration brings a lot of (de)regulation changes, we’ll see more companies audit their pay practices, use market data to evaluate how they’re paying and make the necessary changes in 2017.

4, Performance reviews and comp adjustments will be more frequent – The cumbersome and time-consuming annual review process – and related compensation adjustment – is becoming a dying relic for many organizations. The key problem is the world has changed and very few things can now wait to be done on an annual basis. The rise of analytics and Big Data means business decisions are made in real-time. Talent markets are moving in this direction too, where demand for a software programmer, for example, with specific skills may fluctuate wildly in the course of a few months.

Employers need to be even more nimble and responsive to market demands and we will see compensation adjustments happen at an ever-increasing frequency in response to our shifting talent market.

5. Bonuses will become more prominent – Companies used pay for performance and variable pay at an increased rate in past years and the trend is expected to grow in 2017 as employers get more creative about pay. In fact, 81% of top performing companies used bonuses as a way to reward employees who went the extra mile last year. As managers consider implementing bonuses into the 2017 budgets, they should remember that variable pay is most meaningful when the goals and performance metrics are strongly aligned with the desired outcomes for the business (i.e. not just tactics). Developing a bonus pay matrix which pairs performance measures with the proposed variable pay structure is a great place to start.

This article was first published on Compensation Today, the PayScale blog.