Employers and their workers may have some different goals with respect to compensation, but the parties clearly have a shared interest in the effectiveness of pay programs. So, just how effective are they?
The best answer is probably the tried-and-true “it depends,” judging from a new report by Willis Towers Watson (WTW).
Pay programs have six core objectives, according to WTW: driving employee attraction; driving employee retention; promoting fair compensation among the workforce; promoting competitive compensation compared to employees at other organizations; aligning with business strategy; and rewarding employees for current-year performance.
In WTW’s global survey of 1,894 organizations, only about half reported that they effectively deliver on each of those objectives.
The relatively tepid success rate of pay programs is in part attributable to factors that have influenced the nature of work in recent years, WTW said. Those factors include labor-market conditions such as talent shortages, generational shifts, and new work models, as well as such socioeconomic trends as the pandemic-induced shutdowns and high inflation.
“Organizations likely haven’t been able to focus on the factors that drive pay program effectiveness for the past few years, given the recent dynamics of the labor market,” said Lori Wisper, a managing director and leader of work and rewards global solutions. “As current economic conditions have eased the labor-market pressures, companies should take the opportunity to make the necessary changes to address those factors.”
Ineffective communications regarding pay programs may be hampering their effectiveness, survey data suggests. Fewer than one in four respondents rated each of the four types of communication as effective.
WTW noted most organizations have responded to labor market conditions by increasing their salary budgets in recent years. However, inflation has taken a bite out of the impact of those increases.
When economic growth was stronger than it has been recently, WTW opined, “Organizations were more likely to be able to pass inflationary costs and rising wages on to customers through higher prices, but that is less common now.”
That’s one reason why salary budgets are now projected to decrease through 2025. But while demand for labor has moderated this year, the supply of labor is largely unchanged, WTW pointed out. “There still are significant worker shortages in many places and for many skill sets for a variety of reasons, including increased retirements and lower birth rates in most industrialized nations,” WTW wrote.
