PayScale Survey Reveals the Compensation Best Practices of 2020

The results are in.

PayScale’s 2020 Compensation Best Practices Report (CBPR) is one of the largest compensation and benefits surveys focused on North America covering everything from average base pay raises to how companies train managers on pay communications to the top trends in variable pay and benefits. PayScale analyzed responses from almost 5,000 employers to over 100 survey questions about compensation, benefits, talent strategy, and employee engagement from November 2019 to January 2020.

Today, the report was released.

Impact of The Labor Market

It’s a tough labor market out there, with unemployment rates at record lows in 50 years (3.5 percent) and highly skilled talent scarce and getting scarcer. Looking at the talent needed for the future, employers want to attract the best while also increasing retention and reducing expenses associated with continuous hiring cycles. To do this, they are investing in employer branding, which includes defining company values, providing better benefits and office culture perks, and becoming more transparent.

Base Pay Increases

Employers are also making considerable investments is compensation, with 82 percent of organizations giving raises in 2019. However, we didn’t see base pay raises increase from last year. The average base pay increase in 2019 was 3 percent, just like in previous years. In addition, employers gave less in raises than they had budgeted for. Thirty-four percent of organizations budgeted to give 3 percent raises and 11 percent budgeted to give 4-5 percent raises. However, only 29 percent of organizations actually gave 3 percent raises and only 9 percent gave 4-5 percent raises. Raises of more than 5 percent were slightly higher than budgeted, which might make up the difference depending on the amount, but more organizations also gave lower raises than budgeted.

Base pay raises also differed by industry. For example, Agencies & Consultancies, Engineering & Science, and Technology companies were shown to have given higher base pay ranges than other industries, while Education and Government gave lower raises than other industries. 50 percent of organizations also said they compensate more for competitive jobs, with IT occupations being cited as the most competitive (26 percent), followed by engineering (22 percent) and skilled tradespeople (22 percent).

Compensating Hot Skills

Paying more for hot skills has risen in prominence, falling just behind retention and recruitment for reasons to adjust compensation strategy. In addition, in answer to the question “does your organization prioritize skills or education more?” 71 percent of organizations said skills were the top priority. Organizations simply don’t have enough people with highly developed skills, like technology and analysis, to get to where they want to go, and university degrees don’t always exist for the talent they are looking to hire, or are insufficient at measuring proficiency. Interestingly, when we asked organizations to prioritize the top skills, it was actually soft skills that were ranked the highest: critical thinking, complex problem solving, and emotional intelligence. Ability to program/code was ranked fourth.

Trends in Benefits

CBPR also looked at benefits and perks and found that not much has changed. Year over year, organizations continue to invest in employer-paid medical, dental and visions insurance (78 percent) as well as a 401K or 403B (73 percent). However, some organizations are experimenting with offering more atypical benefits to differentiate their employer brand and attract and retain top talent in a tight labor market. As technology has changed the nature of office work, many organizations now offer remote work opportunities (48 percent) and flex-time (39 percent), both of which have increased by a few percentage points since last year and continue to increase year over year. Paid family leave has also been increasing year over year, now at 38 percent for 2019 where it was at 32 percent for 2018 and 29 percent in 2017.

Employee Perception

On of the unique aspects of PayScale’s Compensation Best Practices Report is the Corporate Chasm. This analysis studies the differences in responses between employers and employee audiences on questions related to compensation and engagement. Interestingly, the data show that employers are more optimistic about employee perception of compensation practices than employees were actually favorable. For example, 65 percent of employers agree or strongly agree that employees feel appreciated at work while only 48 percent of employees felt they were appreciated, constituting a 17 percent gap in perception. Similarly, 45 percent of employers agree or strongly agree that employees feel they are paid fairly while only 21 percent of employees agree or strongly agree that they are paid fairly, a 24 percent gap in perception.

Even more interesting was that employers underestimated employee perception on questions like whether employees have a great relationship with their manager and whether employees are trusted to decide how to do their own work. This data suggests that HR could do a better job communicating with employees and managers about company compensation practices and policies as well as doing a better job of understanding employee relationships with their managers and autonomy in the workplace.

Compensation Strategy

When it comes to compensation strategy, the majority of organizations (71 percent) said they either had a compensation philosophy/strategy or were working on one.  When it came to perception of the employer’s pay brand, most organizations felt that employees and candidates were either neutral on the matter or thought it was good. However, it was interesting that organizations felt that candidates had a higher view of their pay brand than their employees.

Looking Ahead

As for the year ahead, recruiting and retention are predicted to be the biggest challenges for HR in 2020. Correspondingly, 85 percent of organizations plan to give increases to base compensation in 2020, with 34 percent of organizations planning to continue the trend of giving a 3 percent average base pay increase.

This has been just a slice of what is included with PayScale’s Compensation Best Practices Report. CBPR contains not only a wealth of data, but also sound advice on establishing compensation best practices, from establishing a pay brand to fostering better pay communications and pay transparency.

For more information and insights from the report and a chance to ask questions, register for the live webinar taking place March 19, 2020.  To download the full report, please visit the website for the 2020 Compensation Best Practices Report.