Last year was anything but boring. Between elections, complications of regulatory changes, and increasingly competitiveness of markets for employees, we have had to work to keep ahead of changes. In the spirit of the start of a new year, this Compensation Alert looks back to summarize the Top Five 2016 Compensation Trends.

#5: Companies explore mix of pay options
Gone are the days when companies compensated with just base salary. Gone are the days where companies gave bonuses that were not linked to performance. In an effort to compete for top talent, companies are exploring all options for recognizing and rewarding employees. That includes using team-based incentives to drive collaboration, providing creative perks, offering performance-based incentives across the organization, and implementing long-term incentives programs.

A key to making it all work is to understand your workforce so you have a strong sense of what will and will not motivate them.

#4: Organizations are managing performance more frequently
In 2016, many organizations decided to change their performance management process. Some have come to the realization that the traditional model of an annual performance meeting was not working for either the employee or the manager.
As companies change their performance processes, they are now more focused on what they are trying to attain: performance management that is aligned with business goals, organization culture and timeliness, pay for results, and tailored to frequently communicate with employees.

#3: Companies are beginning to address transparency and communications

Transparency has become a key topic in companies this past year. A recent survey found that 47 percent of top-performing companies are transparent about pay vs. 40 percent of all companies. Transparency is not an all or nothing option, but rather a spectrum of ways to communicate effectively about the decisions that went into developing compensation programs and adjusting and delivering pay in the organization.
As reported in a recent WorldatWork article, Mayo Clinic surveyed its employees and found that only a percentage in the high teens understood their pay program. After no changes to how compensation programs were structured, and after extensive communications, employee understanding rose to over 80 percent. At the same time, the effectiveness of compensation increased.
#2: Compliance heated up with minimum wage, gender pay equity, and FLSA changes
Many state and local minimum wages changed in 2016. As it is quite likely that the new administration will not advocate a national regulation, companies will need to track changes at their locations at both the state and local level.Several states, including California, New York, Maryland and Massachusetts, enacted new equal pay legislation in 2016. While equal and fair pay were driving forces, there was a need for better communication.  There was also an interest in defending employees’ rights to talk about pay.Changes to FLSA regulations were the “biggest change that wasn’t” in 2016. Many organizations spent time preparing for the change, auditing their jobs, pay, and options to ensure compliance. Indeed, when the injunction to halt implementation of the administration’s proposal, many companies had already revised their pay practices and modified payroll systems to begin paying under the new regulations. Regardless of the future status of the FLSA proposed regulations, the changes may become fixed in many organizations simply because many employers are uncomfortable walking them back for fear of damaging morale and engagement.
#1: Companies focused on market competitiveness
As our economy steadily grows and unemployment continues to drop, the market for talent is getting more and more competitive. It also seems that a significant number of employees are looking to change jobs to both advance their careers and to receive higher compensation.

Companies are turning to market data to support their pay decisions and to adjust their pay strategies to reflect how the market impacts pay. As we have reported earlier, when we meet with clients or potential clients or make presentations to senior executive and human resource groups, we ask at the end of our presentations what are the most significant compensation challenges they are facing.  Their responses are overwhelmingly twofold: competitiveness and keeping their top performers. After probing a bit deeper, they are concerned about reaching a competitiveness target that allows for attracting, retaining, and motivating a talented workforce.

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