Compensation Programs Falling Short at U.S. Employers, Towers Watson Surveys Find
September 08 2014 - 9:05AM
Business Wire
Companies differentiating pay for performance less than
before
Despite the importance of pay when it comes to attracting and
retaining employees, companies are falling short in the delivery of
their base pay and annual incentive programs, according to research
from global professional services company Towers Watson (NYSE,
NASDAQ: TW). Further, while the competition for talent is heating
up, companies are not differentiating pay for their best performers
as much as in recent years, and some continue to provide annual
bonuses to employees who don’t meet performance goals.
“Pay really matters to employees when they make decisions about
whether to join or stay with a company,” said Laura Sejen, managing
director, Rewards, at Towers Watson. “But simply offering a
competitive salary and annual bonus is not enough to win the war
for talent. Employees believe that employers are falling short in
how pay decisions are made and that there is much room for
improvement.”
Consider these findings from the Towers Watson Global Workforce
Study:
- Only one-half (50%) of employees
believe they are paid fairly compared with other people in similar
positions in their organizations.
- Fewer than six in 10 employees (59%)
say their company does a good job of explaining their pay
programs.
- Less than half (40%) report a clear
link between pay and performance.
- Only one-half (50%) of employees say
their managers are effective at fairly reflecting performance in
their pay decisions.
Meanwhile, employers give themselves middle-of-the-road ratings
on the effectiveness of their base pay programs, although they
believe they are more effective at delivering annual incentives.
According to the Towers Watson Talent Management and Rewards
Survey, about a third of U.S. employers (35%) say their employees
understand how base pay is determined, and even more (61%) say
employees understand how their annual bonuses are determined.
Roughly four out of 10 (38%) say managers execute their base
programs well, while 53% indicate that managers execute their
annual incentive programs well.
In a separate survey, Towers Watson Data Services found that
U.S. employers are planning to give pay raises that will average 3%
in 2015 for their exempt nonmanagement (e.g., professional)
employees. That is only slightly larger than the average 2.9%
increase workers received in each of the past two years. Meanwhile,
annual bonuses are expected to fall short of target, the fourth
consecutive year employers are unable to fully fund their annual
incentive pools. However, while star performers are expected to
receive significantly larger pay raises and above-target annual
bonuses, employers are differentiating less for performance
compared with previous years.
Exempt workers who received the highest performance ratings were
granted an average salary increase of 4.5% this year, about 73%
greater than the 2.6% increase given to workers receiving an
average rating. Three years ago, the best-performing workers
received raises that were 80% greater than raises given to average
workers.
The survey noted that pay differentiation for annual bonuses is
narrowing as well. The top 10% of employees are expected to receive
bonuses that are 25% larger than those given to employees who met
expectations. In 2010, those same top performers received bonuses
that were 30% larger than those of workers who met expectations.
Interestingly, almost one-third (30%) of employers plan to give
bonuses to workers who failed to meet performance expectations, an
increase from last year, when nearly one-fourth gave bonuses to
employees with the lowest ranking.
“Despite awarding better-than-target bonuses and higher merit
increases to their best performers, many companies are still not
providing enough differentiation in their incentive programs for
them to be effective. In fact, it appears that the extent of
differentiation has declined in the past few years. This is a
missed opportunity not just for recognizing top performance and
improving the employment deal for this segment of the workforce,
but also for creating incentives for improved productivity across
the entire employee population,” said Sejen.
About the Surveys
The Towers Watson Data Services Salary Budget Survey was
conducted in June and July 2014, and includes responses from 1,090
U.S. companies representing a cross section of industries. The
survey report provides data on actual salary budget increase
percentages for the past and current year, along with projected
increases for next year.
The Towers Watson Talent Management and Rewards Survey was
conducted from April to June 2014 and includes responses from 337
U.S. companies from the U.S. The participants represent a wide
range of industries and geographic regions.
The Towers Watson Global Workforce Study covers more than 32,000
employees, including 6,014 from the U.S., selected from research
panels that represent the populations of full-time employees
working in large and midsize organizations across a range of
industries in 26 markets around the world. It was fielded online
during April and May 2014.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global
professional services company that helps organizations improve
performance through effective people, risk and financial
management. The company offers consulting, technology and solutions
in the areas of benefits, talent management, rewards, and risk and
capital management. Towers Watson has more than 14,000
associates around the world and is located on the web at
towerswatson.com.
Towers WatsonMedia Contacts:Ed Emerman, +1 609 275
5162eemerman@eaglepr.comorBinoli Savani, +1 703 258
7648binoli.savani@towerswatson.com
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