The world is in a period of rapid change, and the world of work and rewards is not immune. A global pandemic, a rush for digital talent, supply chain disruptions, international conflicts, a changing workforce and rising inflation are just a handful of the issues affecting compensation and HR professionals.
Additionally, there is an increasing sense that the market for talent is changing so quickly that data that is even just six months old may already be out of date. Now add the weight of a data-intensive world and organization leaders who expect compensation and HR professionals to have all the answers to all the questions right now – all supported by real-time data.
Compensation and HR professionals face a real challenge, and they need to be confident that they have the best information for talent acquisition and retention discussions. They also need to be prepared to respond to true vs. anecdotal salary demands. Organizational leaders may believe the only way to address this problem is for market data to be continually refreshed in real time. But does “real-time” data really equate to “the best” data in the world of compensation? Are an organization’s talent-related problems truly solved with “just-in-time” salary market data and analytics?
The reality is, not all data is equal regardless of when it’s delivered. And not all external influences are felt the same way in all regions, industries or company sizes. Identifying the salary data that really matters requires a look at the factors that influence strategic business decisions.
Annual survey data continues to be the most effective tool
While some positions require more timely review based on market changes (e.g., digital talent, hot jobs, high-demand jobs), the annual compensation survey continues to provide the most accurate and trustworthy data for a variety of reasons.
Up to 75% of organizations conduct reviews between January and April
Further 15% of organizations conduct reviews in May to July
Most organizations review their compensation data – and provide merit and cost-of-living increases – annually. In fact, more than 85% of organizations conduct their reviews in the first six months of the calendar year, according to WTW’s Salary Budget Planning Report. And, based on the results of our global compensation surveys, we have seen that compensation-related decisions remain valid until the next annual review.
Of course, there are situations that affect compensation trends – off-cycle adjustments and new hires in particular. However, these only impact a small number of jobs across most organizations. It is important to understand that annual salary data is used in line with organizations’ overall annual cost (salary) budget process.
Compensation budget for organizations is changing every day with employees leaving and new joiners coming in. It’s important for organizations to stick with the overall planned salary spend for the year to control overall costs.
For business-critical positions with budgeted compensation amounts that deviate from market reality, it’s important to determine whether revenue can keep pace with the extra costs without impacting the overall margin. Then it’s important to conduct the same evaluation for specific positions and markets in which changes are happening more quickly than annually. In those cases, there are other means for identifying trends.
For example, pulse surveys on a specific topic, market intel or even the aforementioned Salary Budget Planning Report reflects data collected bi-annually. This allows for a mid-year understanding of how organizations may be adjusting their compensation plans based on extraordinary marketplace factors as well as a view into final decisions made by year’s end.
One final note regarding annual compensation reviews: Data is only “real-time” in the sense that information was recently submitted. And salaries tend to only change once a year, unless someone starts a new job or receives an off-cycle adjustment. Salary data is only as real-time as the annual salary review process. Also, increasing salaries based on market pressure or retention goals is determined by the overall affordability of your department, business line or company. There is no one-size-fits-all approach here.
Complicating matters, many companies make their salary adjustments at different months each year. As such, so-called real-time data may only capture fluctuations in the data based on the organizations that most recently provided data. This leads to an inaccurate picture that market data is higher or lower at any given moment rather than acknowledging the broad market reality for a job in a given year.
Strategic decision making depends on reliable market information
With inflation and cost-of-living expenses on the rise, employees are increasingly wondering why their compensation isn’t keeping pace. Yet, even before inflation came into play, Google searches made it easy for anyone to explore typical pay for their roles – then turn around with their research in-hand and question the competitiveness of their salary.
However, experienced compensation and HR professionals understand the proper place for crowdsourced or web-scraped data: Providing an indication or reference point when no other data is available. They also understand that this data:
- Typically only reflects a small, self-reported and unvalidated data set
- Changes frequently based on who from “the crowd” is providing their salary information
- Is a mix of annually updated salaries and new-job holders
- Is unclear about whether it is any more “up to date” than annual salary surveys
- May be captured through bots (i.e., web-scraped through job portals vs. actual self-reported by individuals)
While crowdsourced data may fill the gap when other information is unavailable, it lacks the nuance and sophistication of tested, validated and credible employer-verified data. Similarly, with more regulations mandating pay transparency, recruitment data – which focuses on an individual role or specific organizational need – can cause an artificial inflation of new-hire pay. And it’s not worth basing important compensation decisions on questionable information.
When considering crowdsourced data, it’s important to realize that most organizations – regardless of whether they formally articulate it – have pay philosophies that focus on attracting and retaining talent by paying competitively relative to a targeted, competitive labor market. Compensation philosophies are grounded in the cost of labor for organizations, not in the cost of living for employees.
Contrary to what employees may believe, salaries are not as responsive to changes in the labor market as one may think. With a strong propensity to control fixed costs, compensation and HR professionals look to tightly manage salary budgets. Even with the current labor market shortage and inflationary pressures – which workers are leveraging to demand higher pay and benefits – employers have been cautious about being the first to significantly raise salary budgets. Change may come, but it will be after careful consideration and it can come in many forms: incentives, benefits and even an enhanced purpose-driven employee experience.
All of that being said, it is in fact important to monitor geographies that are hit particularly hard by hyperinflation, like Sub-Saharan Africa and Argentina. For example, WTW conducts quarterly Pulse Surveys to monitor how unstable market conditions, underdeveloped HR functions and wide skills gaps are affecting approaches to rewards.
It also is important to remember that there are other components that play a factor. For example, the overall employee experience is sometimes more important than compensation. In addition to pay, employers also have a litany of tools in their arsenal including:
- Employee benefits programs that safeguard employees’ health and finances
- Wellbeing programs that tackle employees’ emotional, physical and mental health
- A changing approach to the way work is done that supports flexible work arrangements
In short, everything counts when you’re attracting and retaining employees. No organization was ever named an employer of choice for base salary and merit increases alone.
Focus on trends, respond to high-demand jobs and get ahead of the curve
While the annual compensation survey provides accurate data for many organizations and roles, about one-third of participants in a WTW client feedback survey said they need more frequent updates for at least some select jobs. The challenge is identifying those roles where the market is changing faster than reflected in the annual compensation survey.
Compensation and HR professionals may find themselves hard pressed to respond to questions about the market competition that builds around certain jobs:
- How much is necessary to attract top candidates for hot jobs and high-demand jobs?
- How much is enough to retain key talent?
- How can your organization anticipate hiring and attrition issues before they materialize?
Many of these roles are in the digital space (e.g., machine learning, cyber security), which has been under increasing scrutiny since the onset of the pandemic when, ready or not, organizations were forced to accelerate their digitalization efforts. Other roles that came into unexpected demand because of the pandemic are in health care, transportation and logistics.
In response, niche survey data is beginning to enter the survey market to focus on what is trending. This allows organizations to respond before demand overtakes supply. For example WTW’s 2022 Hot and High-Demand Jobs Report – U.S. leverages historical data to identify how hot a job is across multiple dimensions, including recent and sustained pay increases, surges in demand and top paying disciplines. These dimensions can identify which jobs are more in-demand at selected career levels and support pay strategies for attracting and retaining these roles.
And, within these emerging roles, it is important to consider the impact of skills on pay. WTW research shows that pay variations for skills are most common for digital jobs. Insights into the impact of key skills on compensation can help attract and retain critical talent. For example, WTW’s SkillsVue and SkillsVue – Europe software reveals impacts, trends and skills prevalence data that support defensible compensation decisions and broader organizational planning.
Compensation professionals need a blend of data and best practices
The world isn’t slowing down, which makes having a combination of the best, most trustworthy data along with timely, thought-leading insights important when you’re making decisions about your organization’s largest investment: your people. The right combination of data and intelligence ensures compensation and HR professionals can be confident in their recommendations and know their decisions are defensible at every level of the organization.
There are a lot of assumptions and misconceptions about the value of real-time data, its availability and how it can be used. This makes it important to be able to educate organizational leadership about the true value of comprehensive, tested, reliable data as well as the factors that influence strategic – not just-in-time – compensation decisions.
The reality is, there is no one-size-fits-all approach. Finding the best rewards recipe for your organization requires the right combination of ingredients. It is also important to have a strong partner who can help you respond to senior leadership questions around data currency, accuracy and efficacy. That winning combination will build outstanding compensation and Total Rewards programs that position your organization to find and keep the talent you need.
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