Global employers are missing the mark on workforce pay effectiveness, with less than half delivering on core business objectives, research has revealed.
A global employer survey, from WTW, examined how well businesses were delivering against six core areas that drive effective pay strategy: attraction; retention; fair compensation; competitive compensation; alignment with business strategy; and rewarding employees for current-year performance.
Around half of employers said they are effective at two of these objectives, while fewer than half said their pay strategy delivered on each of the other four.
Changing nature of work
This is a concern because related research shows that 48 percent of employees say pay is a main driver for both attraction and retention, while 56 percent of employees said they would consider another job for better pay.
The findings, reported in the WTW 2024 Pay Effectiveness and Design Survey with around 1,900 companies, suggest that the failure to deliver greater pay effectiveness is due in part to changes in the nature of work over the past several years. From talent shortages and generational shifts, to new work models and the impacts of the pandemic and high inflation, the nature of work has been in flux.
A lack of communication around pay within an organisation is another factor employers say is eroding pay effectiveness. Less than a quarter of employer respondents said their business is effective at communicating how employee pay is determined. Closer to three fifths of employers (58 percent) believe that salary compression – when employees with different levels of experience, skills, and responsibilities earn similar salaries – is an issue and a similar percentage think it will be a problem in the next few years.
Compensation philosophy
Tom Helier, senior director, work and rewards at WTW, said: “We’ve always understood the key drivers of pay effectiveness, but what we’ve learned is that many organisations may not have been able to focus on these factors over the past few years due to complex changes in the labour market. Now is the time to get your compensation strategy in order.
“Companies should begin by reviewing how well their compensation philosophy aligns with their business and talent priorities. This is a crucial first step not only to ensure pay programmes deliver value and enhance organisational effectiveness, but also to attract and retain top talent, boost employee productivity, and drive financial performance.”
The survey found that among companies that have updated their compensation philosophy in the last five years, the most commonly cited reasons for those changes was to enhance attraction or retention (69 percent), to enhance the employee experience (51 percent), and ongoing or regularly scheduled review and refresh (47 percent. Further reasons include building employee understanding (45 percent), and enhancing pay transparency (44 percent).
“As companies gear up for their annual pay review, now is the ideal time to reassess pay effectiveness. With evolving business dynamics and employee expectations, it’s crucial for organisations to ensure compensation strategies are not just competitive but aligned with broader business goals. This isn’t just about keeping up – it’s about staying ahead.” added Helier.
