2020 Compensation
Best PracticesBest Practices

Winning the Juggling Act

How strategic compensation attracts and retains top talent in a tightening labor market.

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Winning the Juggling Act

How strategic compensation attracts and retains top talent in a tightening labor market.

GET THE FULL REPORT

Executive Summary

The overarching theme for the 2020 Compensation Best Practices Report is centered on the increasing difficulty organizations are having in finding highly qualified candidates to fill gaps in the workforce, especially highly skilled technical talent capable of helping organizations modernize their technology, make use of company data, and digitally transform their services. To attract and retain top talent, more organizations are focusing on building an employer brand, which includes a more strategic approach to compensation and career pathing as well as better benefits and more varied and incentivizing ways to reward performance.

66 percent

of organizations agree or strongly agree that retention is a top concern.

85 percent

of organizations intend to give base pay increases in 2020.

70 percent

of organizations say they either have a compensation philosophy / strategy or are working on one.

57 percent

of organizations have completed a salary market survey in the past 12 months.

38 percent

of organizations plan to conduct a pay equity analysis (racial, gender, or both) in 2020.

73 percent

of organizations budget for variable or incentive pay, with individual incentive bonuses being the most prevalent type (67 percent).

Retention, Recruitment, and Hot Skills Among Top Reasons to Adjust Compensation

In a shrinking labor market, getting compensation right is a critical component of any strategic approach to talent acquisition and retention. Sixty-six percent of organizations agree or strongly agree that retention continues to be a major concern for most organizations, with retention, recruitment and paying for hot skills topping the list for why organizations adjust compensation strategy.

Top 3 Reasons to Adjust Compensation Strategy

Top 3 Reasons to Adjust Compensation Strategy

However, while 82 percent of organizations gave base pay increases in 2019 and 85 percent plan to give base pay increases in 2020, the average pay raise isn’t expected to increase significantly from 2019, as 71 percent of employers estimate giving an average base pay increase of 3 percent or less In 2020 compared to 67 percent of employers giving an average base pay increase of 3 percent or less in 2019.

Average base pay increase given to employees
in 2019

Average base pay increase given to employees in 2019

Average Expected Base Pay Increase Given to Employees
in 2020

Average Expected Base Pay Increase Given to Employees in 2020

However, organizations continue to reward high performers more than typical performers. The highest base pay increase given to an employee (excluding promotions) was greater than 10 percent for 41 percent of all organizations. Nineteen percent of organizations gave at least one increase in the 10 -14.99 percent range. Nine percent gave an increase of 20 to 30 percent and 4 percent gave more than 30 percent.

HIGHEST BASE INCREASE GIVEN TO ANY EMPLOYEE IN 2019

HIGHEST BASE INCREASE GIVEN TO ANY EMPLOYEE IN 2019

How Top Performing Organizations Reward Top Talent

This year, we looked at what top performing organizations are doing to attract and retain top talent and particularly what differentiates top performers from typical organizations. When it comes to compensation and benefits, giving a bigger pay increase to high performers was at the top of the list. However, top performing organizations were more prone than typical organizations to reward high-performing employees with every type of incentive except flexible work schedules.

We also saw that top performing organizations were more likely to invest in more types of variable pay as well as better benefits and perks. Although organizations still rely heavily on traditional benefits such as employer paid medical, dental and vision insurance (78 percent) and retirement plans (73 percent), we are seeing an increase in other types of benefits, such as offering remote work opportunities (48 percent) and paid family leave (38 percent).

Additionally, we saw accrued or granted PTO remain high in popularity (60 percent) while unlimited PTO is growing in popularity (11 percent, up from 9 percent in 2018 and 5 percent in 2016). We expect to see continued investment in benefits that emphasize physical, emotional and social well-being as organizations invest in programs to enhance the employee experience in an effort to attract and retain top talent.

Learn more about what top performing companies are doing around compensation and benefits.

How Organizations Reward High Performing Employees

How Organizations Reward High Performing Employees

Most Organizations Want to Be More Transparent About Pay

Providing the right mix of compensation to attract and retain top talent is only part of compensation best practices. Equally important is how compensation practices are communicated, understood and perceived by an organization’s employees. Forward-thinking organizations acknowledge the importance that pay transparency has on workplace culture and actively establish a pay brand to drive positive perceptions of fairness and increase employee engagement. Organizations with more mature compensation practices also train managers on how to effectively communicate compensation policies.

The pay transparency spectrum defines the degree to which your organization shares its compensation strategy with employees or — at the far end of the spectrum — publicly. There are no right or wrong answers with pay transparency and our data show that both top performing organizations and non-performing organizations can be anywhere on the spectrum.

However, previous research from PayScale has shown that increased pay transparency also increases employee engagement and retention when compensation strategy is tied to salary market data and decisions about pay are well-communicated. In addition, PayScale research has also shown that pay transparency closes the gender wage gap.

Year over year, most organizations confess that they are less transparent than they would like to be with the majority of organizations targeting Level 3 or Level 4 on the pay transparency spectrum. The percentage of organizations targeting Level 5 pay transparency has ticked up two percentage points since last year.

How Organizations Reward High Performing Employees

Pay Transparency Spectrum

Pay Transparency Spectrum

However, most organizations have room to improve their pay communications. Only 32 percent of organizations train managers on how to talk about compensation with employees and only 38 percent provide total compensation statements or total rewards statements to employees or share pay ranges for positions. These pay communication practices are differentiators for top performing organizations.

Most Organizations Have a Pay Philosophy or are Working on One

The last few years have seen a steady rise in employer branding as organizations strive to apply customer experience best practices to candidate and employee experiences. At PayScale, we define a “pay brand” as the perception that employees and job candidates have about an organization’s compensation practices and communications.

In order to develop a strong pay brand, organizations have to have mature compensation planning processes. This usually includes a pay philosophy articulating why you pay as you do within the general trends for your industry and labor market as well as pay ranges or grades and a plan for how you communicate pay decisions with managers and employees.

According to our data, the majority of organizations in 2019 either have a compensation strategy and philosophy that they share with employees or are working on one.

How would you evaluate perception of your organization’s current pay brand?

How would you evaluate perception of your organization's current pay brand?

However, when we asked employers to provide commentary on their pay brand, responses were all over the map, with some organizations lauding their pay brand as industry-leading and others saying they do not have one at all or that their pay brand is perceived poorly. Most organizations felt that their pay brand was perceived better by job candidates than actual employees. Forty-seven employers rate their pay brand as either good or very good for job candidates while only 43 percent of organizations rate their pay brand as good or very good for employees.

Does your company have a formal compensation/strategy/philosophy?

Pay Philosophy

Download the Compensation Best
Practices Report for 2020

2020 CBPR Report

The 2020 Compensation Best Practices Survey gathered responses from November 2019 to January 2020. There were 4,903 respondents included in this survey.

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Survey Methodology

The 2020 Compensation Best Practices Survey gathered responses from November 2019 to January 2020. There were 4,903 respondents.

Top-Performing Organizations

Top-performing organizations are defined as those who exceeded their revenue goals in 2019. Twenty-one percent of respondents fit this criterion.

Location

Respondents spanned the globe, including 3,913 respondents in the United States and 440 respondents in Canada. Organizations with both single and multiple locations were represented.

Organization Size

We defined four organizational sizes for comparison as follows: Small (1-99 employees), Mid-Size (100-749 employees), Large (750-4,999 employees) and Enterprise (5,000 or more employees). Forty-two percent of respondents reflect small organizations; 31 percent of respondents come from mid-sized organizations; 15 percent of respondents come from large organizations, and 12 percent come from enterprise organizations.

Industry and Org Type

As in prior years, the top industries represented in the survey were Technology (including software), Healthcare and Social Assistance, Manufacturing, Nonprofit, and Finance & Insurance. In terms of organization type, most respondents were either from a public company, a private company or a nonprofit (86 percent), but we also have respondents from government, schools, colleges/universities, hospitals, cooperatives and trade associations.

Job Level

Most respondents identified at the Manager level (28 percent). Twenty-six percent identified as Individual Contributors, 23 percent identified as Directors, 7 percent identified as Vice Presidents and 14 percent identified as C-level executives.