Press Release

Salary costs increase while margin growth low in Australia – Willis Towers Watson research

May 23, 2017
| Australia

SYDNEY, 23 May, 2017 — In a low yield environment, Australian salary costs are increasing, according to research by leading global advisory, broking and solutions company, Willis Towers Watson (NASDAQ: WLTW).

A recent assessment of the Willis Towers Watson Australian remuneration database for local and international companies that have consistently provided data for all employees, indicates that although the cost of actual remuneration increase has restrained (approximately 2% per annum between 2014 and 2016), the actual incentive payout ratio across all roles is increasing and nearing the target.
Nidhi Malik, senior consultant in Willis Towers Watson’s Talent and Rewards practice, said the findings raise key questions for the sustainability of remuneration practices, and whether the alignment of performance and reward is effective.

Malik commented: “In years of lower funding, businesses need to assess if budget is being allocated to optimise the spend, with high performers receiving the majority of funding, rather than directing scarce dollars to those who fail to meet expectations. It can also beg the question of whether the annual pay for performance programs, which are truly meant to reward for performance, risk becoming an entitled aspect of the total reward package.”

Malik continued: “There was a decrease in the incentive payout ratio from 97% in 2014 to 87% in 2015, but this jumped to 102% in 2016. This trend plays out across the spectrum of job levels.

“Another key question is how are companies assessing contribution – both in terms of the roles and performance - and how rewards are linked to this. We often see the cost for businesses increasing as more organisations are offering incentives based on classification of roles and not on the contribution of the role. In recent years we have also seen a trend towards incentives being expected by more employees. As a result there is a need for companies to review their reward frameworks.

“Businesses need to develop a strategy that addresses this issue. A performance and reward alignment that is based on ‘looking forward’ rather than ‘looking back’ – what we call a more future-oriented definition of performance.  This includes taking role criticality, skill criticality and team contribution into account when making reward decisions,” Malik said.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.