As companies plan for salary increases this year, they not only need to decide how much extra to pay but also how to communicate their compensation philosophy. According to WorldatWork’s Compensation Programs and Practices survey, 58 percent of businesses target workers’ base salary at the 50th percentile. Compensation experts at WorldatWork believe that compensation will not see any groundbreaking changes in 2015. “Employers tend to largely assess the market value of jobs on an annual basis and address current market conditions on an as-needed basis,” Kerry Chou, senior practice leader at WorldatWork, said in a statement. “Currently, the market isn’t compelling employers to accelerate wage growth in any significant way.” Although experts do not anticipate major shifts in pay, there are key issues that employers need to address, including whether to include more short-term or long-term incentives and whether or not they are conveying their compensation plan effectively. Compensation management and popular incentives How companies approached sales compensation management varied, as the majority of companies had programs to pay employees based on performance. Almost three-fourths of companies have a pay for performance scoring system to help determine which employees are deserving of rewards and pay out incentives based on their productivity and sales levels. To differentiate between top and average performing employees, employers often pay star workers more in pay and incentives to reward employees who meet or exceed their sales targets. The survey revealed top performers earned about 1.5 times more than the average salary increase for employees in the middle of performance levels. In addition to a large chunk of companies confirming they have these types of compensation programs, they also had different ways of motivating employees through incentives. More than 8 in 10 companies offered bonuses to increase productivity. The rise of bonuses in compensation programs In an earlier survey by WorldatWork, Deloitte Consulting and Vivient Consulting, 99 percent of companies said they had a short-term incentive plan, which included bonuses like spot awards, team incentives and project bonuses. More companies have used bonuses to motivate employees to achieve their sales quotas and reinforce their business objectives. Compared to long-term incentive compensation plans, short-term incentives are popular among organizations because they are more flexible and customizable, accounting for the capabilities of employees and the goals of the organizations. The study showed short-term incentive use rose 2 percent to 97 percent at private firms and long-term incentive use dropped 5 percent to 56 percent. Bonnie Schindler, partner at Vivient Consulting, said cash is a strong motivator for star workers to stay at the company, resulting in the growth of short-term incentive plans that bank on the staying power of cash. “We believe the spike in the number of short-term incentive plans occurred because private companies are emphasizing short-term incentives over long-term incentives,” said Schindler. “Private companies are motivating employees using more straightforward short-term plans based on cash because they have found short-term incentives to be motivational for executives and employees.” Issues of pay communication persist While wage growth is likely on the horizon as the economy continues to expand and employers have pay for performance assessments, the study from WorldatWork found a greater pay issue among many organizations is how they convey their compensation philosophy. The study suggested businesses could improve how they communicate their compensation practices, showing 45 percent of organizations said all or the majority of their workforce do not fully comprehend their compensation plans. Although there is a higher percentage of businesses that give out minimal compensation information to their employees with 39 percent in 2014, there is still a gap of knowledge that could prevent workers from understanding their employers’ compensation philosophy. To enhance communication surrounding compensation, companies could provide materials that display their sales pay structure as well as list available incentives that employees can reference whenever they need to further their understanding.
