Significant changes in job skills and performance are leading to changes in compensation strategy as well
In recent years, it seemed that most companies were on equal footing when it came to employee compensation information and forecasting. Competitors had similar data and made business and labour decisions in roughly similar patterns, leading to steady 2.6 per cent to thee per cent annual pay increases.
We’re halfway through 2021 and it seems like the economic factors for managing pay are pointing in varying directions.
The world has changed, so has compensation
How work got done in 2020 was dramatically different for many jobs. According to Mercer's US/Canada Flexible Working Policies & Practices Survey, only 28 per cent of U.S. and 15 per cent of Canadian organizations offered some form of full-time remote work arrangement before the pandemic. As of spring 2021, 62 per cent of U.S. and 77 per cent of Canadian companies have implemented full-time remote working in response to the COVID-19 pandemic.
The pandemic may have been the catalyst that instigated greater remote and flexible work arrangements, but most changes are here to stay. Significant changes in job skills and performance have led to changes in compensation strategy as well. Some jobs have changed so dramatically at a skills level that they may not even resemble the same position as in prior years.
Many jobs will now need to be evaluated and remapped to survey data and the compensation plan re-evaluated. An approximation can miss the boat entirely, especially this year.
Should you redesign your compensation strategy or tweak your existing one? What are your competitors doing?
The devil is in the details
While some industries fared well during the pandemic, others are still trying to recover and continue to feel the impact of the pandemic and related pressures. Some companies had to cut jobs and freeze salaries, while others responded to increased client demand by expanding staff and prioritizing key talent retention.
Only the details found in this year's data show the actual impact on particular jobs, industries, and locations. The effect was not the same across the board. For example, the 2020 Mercer Benchmark Database median base salary increases year over year were relatively homogenous across industries, with most showing three per cent. Of the 14 industry super sectors, only “Other Non-Manufacturing” showed an increase above that number, at 3.5 per cent. The “Services (Non-Financial), Energy, Retail & Wholesale” and “Life Sciences” deviated as well, but on the lower side, ranging from 2.5 per cent to 2.9 per cent.
However, in this year's data, we see much more variety. The highest median year-over-year base salary increase of 3.3 per cent in Life Sciences to the low of 0.0 per cent in “Services (Non-Financial)” shows that there isn't a clustering around a particular percentage this year. As you can see in Chart 1 below, looking at the average year-over-year base salary increase by industry shows even greater variation.
And it doesn't stop there. Even within industries, some jobs are experiencing rewards at a much higher rate than others.
The complex labour market we see in 2021 means that there is no shortcut or substitution for valid, quality salary survey data and compensation reports.
If you’re not paying competitively, nothing else matters
Through a combination of headline events and years of slow incremental change, social issues found their way into the spotlight. Creating a safe and inclusive work environment, flexibility for working caregivers, pay equity, and reskilling employees are essential components of the employee experience and your employer brand.
However, a strong foundation of competitive pay remains essential. Increased pay transparency and access to pay data through the internet empower employees to become more critical of current salary or new employment offers. Flexibility, company culture, and having a good manager are still necessary for recruiting and engaging employees, but to be considered, pay must be competitive.
Some industries experiencing talent shortages find that their employees are contemplating where and how their time is most valuable. The closer you are to that sweet spot where the company, employee and external perspectives align, the better off you are.
Being confident in your understanding of how the market is moving makes your compensation and overall talent strategy more effective.
Your compensation strategy is likely shifting
Talent is no longer flocking to major urban areas for job opportunities.
Employees are moving to less expensive areas with a lower tax burden — how should that affect total compensation? What does that do to the market data you are using?
Many employers are considering whether jobs that were previously assigned to a particular location, and paid accordingly, should now be paid using a national pay range. To make a shift like that, what do you need? Up-to-date, quality market data like that found in a variety of salary surveys that Mercer provides.
Get pay right!