Top Five Compensation Trends from 2016

2016 has been anything but boring. Between the elections, compliance changes, and the ever-increasing competitiveness of talent markets, most of us have been on our toes all year. What trends have impacted compensation the most? In the spirit of the coming new year, let’s count the top five 2016 compensation trends!


#5: Companies explore mix of pay options

Gone are the days where companies compensate with just base pay. Going are the days where companies stop at giving discretionary bonuses that are unlinked to performance. In order to compete for top talent, companies are exploring all options for recognizing and rewarding employees. That includes using team-based incentives to drive collaboration, providing creative perks, and offering performance-based incentives across the organization from executives to individual contributors.


How do you make it work? Get to know your workforce so you have a strong sense of what will and will not motivate them. Not everyone loves a Fido Friday, and an extra day off doesn’t work for those who struggle to cram their work into 40-50 hours or more. One thing that top companies share is that they are much more likely to communicate their mix of pay through a total compensation statement.


#4: Organizations are managing performance more frequently

2016 was a year in which many organizations, large and small, decided to change their performance management processes. Some have said that the annual performance management process, complete with stack ranking, causes the opposite from the intended responses. It creates a highly competitive environment and has been linked to a fight or flight physiological response!


This year, as companies change their performance processes, they focused on what they were trying to attain: performance management that aligns to business goals and timelines, pay for results, and tailoring more to employee communication and work styles.


#3: Companies are starting to care about transparency and communication

Transparency has arisen as a key topic for companies this year. In PayScale’s 2016 Compensation Best Practices Report we found that 47% of top-performing companies are transparent about pay, vs 40% of all companies. Transparency isn’t an all-or-nothing option for companies, but rather a spectrum of ways to communicate effectively about the decisions that went into setting or adjusting pay in your organization.


In 2016 we put all the numbers together, and they add up to a need for more transparency:

  • 82% of employees areok with low pay if the rationale is explained. Implication: talk with employees to share rationale.
  • 80% of employees paid above market believe they’re paid at or below Implication: organizations are throwing money away unless they share market position with employees.
  • 75% ofconversations about pay happen between managers and employees. Implication: managers need to be savvy at talking about pay.
  • 17% of organizations are veryconfident in their managers’ abilities to have tough conversations about pay. Implication: managers need more training and support.


Bottom line? We have to get better at talking about pay, and we have to explain the rationale for pay to managers and through them, employees.


#2: Companies focus on market competitiveness

We’ve known the market is getting more and more competitive. The unemployment rate is lower than before the recession. It seems like employees are looking for jobs all the time. In fact, 60% of employees who feel underpaid, whether they actually are or not, intend to leave their organizations within the next six months.


Companies have been turning to market data to shore up their pay decisions and truly wrap their strategies around how the market impacts pay. In some cases, the market drives pay for jobs. In others, even specific skills can drive pay up by as much as 29%! Here too it’s not enough to just use the market data. As more employees come to interviews and pay reviews with compensation data in hand, organizations are starting to come prepared with data of their own.


#1: Compliance heated up with minimum wage, gender pay equity, and FLSA changes

Many state and local minimum wages changed in 2016, whether by vote or by law. As we anticipate the new administration coming in, and fewer regulations being upheld at the federal level, companies will have to get used to tracking legal changes for all their locations at the state and local level.


The early part of 2016 was dominated by states passing or enacting new equal pay legislation. Beginning with California, New York, Maryland, and Massachusetts quickly followed. While equal and fair pay were driving forces for legislation, a dominant theme across the laws was a need for better communication. Some defend employees’ rights to talk about pay, while Massachusetts went a step further to ban questions about salary history during the recruitment process.


FLSA was definitely the biggest change that wasn’t, this year. Many organizations spent many months preparing for the change, auditing their jobs, pay, and options for ensuring compliance. Recent PayScale data suggest that companies went ahead with changes in anticipating of the ruling, and some companies actually used it as an opportunity to brag about their pay brands.



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