Average salary increases remain at 3 percent, but employers are paying more for top performers
After prioritizing retention of talent for 2015 compensation planning, 51 percent of employers now consider cost management to be their main focus in the coming year. These findings are highlighted in the ninth annual Compensation Planning Survey conducted by Buck Consultants at Xerox (NYSE: XRX).
The modest acceleration of budget size stalled in 2013 at 3 percent and isn't projected to change in 2016. Given the small but stable budgets available to retain a talented workforce, employers continue to carefully consider which employee engagement tools to invest in going forward. Though down 8 percent from last year, 45 percent of employers surveyed stated that retaining top talent remains one of their company's top compensation priorities.
In order to help achieve this goal, more than half (59 percent) said that they plan to create new career development opportunities to retain top performers, while more than a third (35 percent) plan on making pay adjustments to meet market standards, and another third (32 percent) are arranging larger base pay increases.
"Developing and implementing an effective compensation strategy can play a major role in achieving the right balance between controlling labor costs and inspiring the workforce," said Jim Sillery, principal and executive compensation leader, Buck Consultants at Xerox. "Performance bonuses are becoming the real raises in the workplace, allowing employers to reward top talent while controlling their fixed costs and maintaining flexibility for any challenging times in the future."
Employers' strategies show a need to differentiate rewards for top performers, resulting in an increased payout of 4.4 percent to high performers. Nine percent of employees are being rated in the lowest two rungs on the performance level scale, compared to only 6.5 percent of employees in 2014 and 11 percent in 2015.
"The needle for average annual merit increases has been stuck at 3 percent for the last four years and continues at the same level for 2016," said Tami Simon, practice leader for Buck Consultants at Xerox, Career Practice. "Employers continue to be fiscally cautious due to the recent U.S. recession and current global financial instability. We're seeing business decision makers carefully consider which employees to invest in, with top performers getting much more than they did in the past and weak performers getting much less."
This year's survey results provide a broader range of information to help employers take a comprehensive look at how they pay their people and reward performance, ultimately creating more effective compensation strategies.
"To develop a valuable strategy, companies should look beyond base salary to reward and retain their top performers," said Sillery. "In many ways, variable pay has become the new merit pay. It is more efficient since it is not fixed pay and, in most cases, does not drive increases in benefits. It is also more closely tied to performance."
Buck Consultants at Xerox helps companies develop impactful strategies by looking at different alternatives to determine which will work best given competitive requirements in their labor markets, their work culture and aligning pay for performance arrangements with their business strategies.
The "Compensation Planning for 2016" survey collected data on pay increases, pay-for-performance patterns, short-term incentive plans, and attraction and retention programs from 205 organizations in the U.S. Compensation plans of a specific organization or industry may individually differ from overall survey findings.
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