Compensation Programs and Practices Becoming More Formal and Rigorous
Oct. 16, 2012 — Scottsdale, Ariz. — Pay programs and practices at many organizations are evolving. A WorldatWork study, " Compensation Programs and Practices 2012," compared pay practices from 2003 onward and found that even among small organizations, formalized compensation programs that include written philosophies, salary structures and active performance management are prevalent.
“For a vast majority of organizations, employee compensationis one of the largest operational expenses and the most difficult to manage,” said Kerry Chou, a Certified Compensation Professional (CCP) and practice leader at WorldatWork. “We expect to see more compensation professionals applying discipline and rigor to the design and management of pay programs to ensure business objectives are met.”
Key Study Findings:
Compensation philosophy — Compared to two years ago, more organizations today have a formal, written compensation philosophy that ensures a compensation program supports an organization’s culture (67 percent in 2012, up from 61 percent in 2010).
Salary structure design and administration — Eighty-five percent of organizations have a formal salary structure. While there are several types of pay structures, salary grade structures are the most prevalent among 86 percent of organizations. Broadbands, popular in the 1980s and 1990s, have dropped and are now used by only 8 percent of respondents.
Pay for performance — Virtually all organizations (99 percent) assess employee performance. A majority (71 percent) have a formal employee performance rating system.
Individual performance against management objectives or personal objectives has gained substantially and is now used by three out of five organizations. This trend suggests that performance goals and objectives are being set in a deliberate and employee-specific manner, as opposed to using generic performance objectives that may be found on boilerplate position descriptions.
Eighty-five percent of multinational respondents indicate that their performance management program is applied universally worldwide.
Pay communications — Nearly 80 percent of surveyed companies report they communicate pay to employees, using brief written or verbal communications, at least once a year. Nearly eight in 10 respondents indicate that employees have individual discussions with their supervisor regarding pay programs.
Job evaluation methods — Compensation managers useseveral methods to determine the relative value of jobs: market pricing, ranking, classification and point factor. Market pricing is predominant: nine out of ten organizations use market pricing to some degree; 50 percent use it exclusively. The point-factor approach, the most common method a few decades ago, is far behind at 20 percent.
Variable pay — Variable pay continues to be used at most organizations, at 84 percent today compared to 80 percent in 2010.
About the Study
WorldatWork collected survey data for “Compensation Programs and Practices 2012,” in July. The survey report, based on 1,001 responses, covered topics including prevalent practices related to the Fair Labor Standards Act of 1938; exempt and nonexempt positions; types of base salary increases; range spreads for hourly, salaried and executive positions; compensation philosophy and variations by global regions; and many others. The previous report, “Compensation Programs and Practices,” September 2010, is also available on the WorldatWork website.
About WorldatWork® The Total Rewards Association
WorldatWork (www.worldatwork.org) is a nonprofit human resources association for professionals and organizations focused on compensation, benefits, work-life effectiveness and total rewards — strategies to attract, motivate and retain an engaged and productive workforce. WorldatWork and its affiliates provide comprehensive education, certification, research, advocacy and community, enhancing careers of professionals and, ultimately, achieving better results for the organizations they serve. WorldatWork has more than 65,000 members and subscribers worldwide; 95 percent of Fortune 500 companies employ a WorldatWork member. Founded in 1955, WorldatWork is affiliated with more than 70 local human resources associations and has offices in Scottsdale, Ariz., and Washington, D.C.