Compensation Strategies for 2018

Marcianne Kuethen

April 9, 2018

PayScale recently produced its annual Compensation Best Practices report* to help you craft compensation strategies for 2018 in light of the current tight labor market. As an employer, you will need to develop both a plan for how to find qualified professionals and a company brand that attracts that talent. With data from over 7,100 respondents–managers, directors, individual contributors, and VP/C-level leaders–the report goes beyond education about what wages to offer your employees. The data provides some valuable insights into your employees’ perceptions and desires, as well as the strategies other employers intend to adopt.

The Corporate Chasm Between Employees and Employers

There has long been a gap between the perceptions of employees and employers. PayScale has been tracking it for several years, and this report revealed that there are some particularly notable gaps:

The majority of employees feel they are being underpaid. Only 21% of employees felt they are paid fairly, while 67% of managers felt their workers were paid fairly.

Work interactions aren’t as positive as you think they are. 51% of employees felt that work interactions tend to be positive and productive, versus 68% of employers.

Employees feel positive about their relationships with their managers. In a surprising twist, 68% of employees felt that they have great relationships with their managers, while only 58% of employers felt the same.

Pay processes aren’t transparent. Neither employees (24%) nor employers (30%) felt that the company pay processes are transparent.

Compensation Strategies for 2018

Offer pay increases and bonuses to retain employees. Employee retention was expressed as a major concern for 59% of employers surveyed. The tight labor market has empowered in-demand professionals to look for the most favorable workplace environments possible. Reactively, to retain good employees, 84% of organizations are giving base pay increases, but they aren’t significant. 73% of organizations intend to increase base pay by 3% or less, similar to the previous year. 71% of organizations also currently offer some sort of variable pay particularly to attract and retain hard-to-find talent. “Organizations offering individual incentive bonuses increased from 64 to 67 percent last year and hiring bonuses were on the rise, 34 percent in 2017 versus 27 percent the year prior,” says GlobeNewsWire.com.

Have more transparent pay conversations. Research shows that employees who understand the rationale behind their pay have higher levels of trust, loyalty, and engagement. With this in mind, 57% of organizations expressed the intention of greater pay transparency in these conversations.  But how prepared are managers to articulate that rationale to their direct reports? According to the data, only 37% of HR and business leaders trust their managers to converse effectively about the rationale behind pay decisions. Yet 85% of managers feel confident about having pay conversations with their direct reports. PayScale suggests that you don’t have to reveal compensation for all employees to be more transparent. You can make progress simply by discussing your organization’s compensation philosophy, how pay is determined, and where the worker’s pay falls in the range for that role.

Address workplace inequities. 63% of top-performing companies do not plan to conduct a gender or race/ethnicity pay equity analysis in 2018. However, 35% of these companies were actively addressing workplace gender inequities and 28% were actively addressing race/ethnicity inequities in 2017.

The current candidate-driven market requires special compensation strategies for 2018. Use these tips to help your organization stay competitive, retain top employees, and increase employee engagement.

*Data for the 2018 report was gathered at the end of 2017.