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Five reasons market data is critical to the success of your compensation strategy

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Beyond Data

By Hatti Johansson | January 13, 2021

Robust market data can support a measured response to the continuously evolving and uncertain market.

The COVID-19 pandemic and subsequent economic fallout provoked many organizations to take rapid actions to contain costs and manage cash, while still engaging and rewarding critical talent and essential workers.

In the face of tight budgets and continued competition globally, organizations are reconsidering their business and human capital strategies to creatively differentiate their value proposition. Robust market data can support a measured response to the continuously evolving and uncertain market and help you drive employee engagement, optimize rewards spend and anticipate emerging market trends.

Here are five ways market data can help you maximize your compensation strategy.

  1. 01

    Align your compensation plan with your business strategy

    Employee compensation is one of the largest and most valuable investments for any organization. As businesses get back to restoring stability following the COVID-19 crisis, they are learning to adapt to new ways of working and may even face new competitors for the same talent.

    With the right compensation plan, an organization can attract and retain talent to drive profitable growth. Compensation plans can be designed, implemented and administered differently depending on business objectives, but they must be built purposefully and aligned with organizational goals, cultures, values and overall business strategy to succeed. The consequences of getting this wrong can be significant, leading to lower employee engagement and productivity, a gap in critical talent or even difficulty with sustained profitability.

    Using market data is a critical component for crafting a successful rewards strategy aligned to business strategy and financial long-range plans. It supports informed decision-making and ensures your organization is investing wisely and in line with the latest market practices.

  2. 02

    Competitively reward your talent

    As organizations consider changes to their rewards strategies, they are taking measures to understand the diverse needs of their talent while remaining focused on getting work done. They are asking themselves:

    • How do we compete and maintain our market positioning?
    • What is the right balance between fixed and variable pay, today and post-crisis?
    • Do we have the right rewards packages for our employees now and for the future?

    To ensure your organization is paying competitively, analyze:

    • Peers or types of organizations competing for the same talent, considering industry and organization size
    • Competitiveness of various reward components, including base pay, short- and long-term incentives and benefits
    • Geographic area of the talent pool
    • Organization needs for specialized skills

     

    Review the relative market positioning of the total rewards package for your entire population, as well as roles critical to the future success of the organization, such as digital talent. It is crucial to understand not only the market value of targeted roles, but also their potential for growth vis-à-vis the changing business environment.

    Look at data sources that provide comprehensive insights on incentive plan design, performance metrics and rewards administration policies across various industries and countries.

  3. 03

    Optimize compensation spend and build in flexibility

    With corporate pressure to drive sustainable performance and disclose progress on the Environmental, Social and Governance (ESG) agenda, organizations have been compelled to future-proof their rewards programs. Compensation planning is about more than financial metrics, it is about optimizing spend and building flexibility into your rewards programs.

    Compensation plan designs need to be more agile and readily respond to constant changes in workforce demands and market conditions. Many organizations are reimagining a post-crisis workplace and recognize a need to create a culture of flexibility – not only in new ways of working, but more so through fair and equitable rewards and talent-nurturing programs that lead to a superior employee experience.

    In building a future-focused compensation strategy, organizations need to take a holistic approach in integrating employee experience with organization performance benchmarks for assessing sustainable performance5, including:

    • Market competitiveness
    • Fairness and diversity metrics , including pay equity, career equity, or benefits equity
    • Prevalence of ESG metrics in incentive plans and their total weighting
    • Skill premiums, incidence and gaps
    • Employee satisfaction, including retention and turnover rates, and absenteeism

     
    As organizations traverse this modernization journey, they need to consistently review their internal metrics as well as benchmark and track their progress against competitors, with an aim to achieve recognition in the marketplace as a sustainable, employee-centric workplace.

  4. 04

    Ensure compliance with legal requirements

    As you assess your data needs, remember to be mindful of the underlying legal requirements around data privacy and protection, including the General Data Protection Regulation (GDPR) and other local anti-trust regulations.

    The digital regulatory landscape is constantly changing due to rapid technological advancements and geo-political shifts. Organizations need to use reliable vendors that consistently and thoroughly vet market data and ensure strict compliance to global data privacy and anti-trust frameworks. Moreover, there are next-generation solutions that can host multiple data sources securely, helping organizations easily comply with data protection standards across various geographies.

    If your organization operates in different locations and markets, you must also be well-versed in the local employment practices, including mandatory and non-mandatory policies around benefits, taxation, recruitment and turnover. You need data sources that are constantly updated with market best practices and comprehensive descriptions of policy designs to comply with local legislation for HR programs, as well as compare global policies with country-level practices.

  5. 05

    Stay up to date on rapidly changing market practices

    Our recent Salary Budget Planning Report found that globally, 38% of organizations halted regular salary reviews in 2020, but this is expected to go down to 13% in 2021. Additionally, only around a third of organizations in most, if not all sectors, took pay-related actions, with the most common as reducing or delaying merit increases (36%) and freezing salaries (28%). Most organizations expect to remain cautious with pay adjustments in 2021.3,4

    An emerging topic in compensation is restructuring pay for a distributed workforce. In the next three years, remote working is likely to become permanent in 60% of organizations globally. This opens questions around location-based components of pay programs such as geographic differentials and commuter allowances, and new types of incentives such as subsidies for telecommuting expenses and flexible benefits.1

    The global situation remains volatile but, with most organizations now on the path to recovery, it will be interesting to see how the world of work collectively navigates through the “next normal.” Staying up to date with market data amidst continuously evolving circumstances helps you to discern temporary versus permanent adjustments to meet new market realities. Leveraging the research to proactively make fair and competitive pay decisions can also help prevent actions that may unintentionally damage employee morale and employer reputation in the long run.

What do rewards specialists need to do?

Four actions to keep in mind:

  • Stay attuned to rapidly changing market trends in work and rewards
  • Use market data to understand the practices that drive employee engagement, optimize rewards spend in each country and anticipate emerging research findings and trends
  • Participate in compensation, HR practices and benefit design practices surveys to ensure continuity in the data and stability in the year over year results
  • Habitually turn to market data for those crucial moments when you need to understand market best practice

References:

1 Flexible Work and Rewards Survey: 2021 Design and Budget Priorities
2 2020 Artificial Intelligence and Digital Talent Survey
32020 Salary Budget Planning Survey
4 2020 Actions to Restore Stability Survey
5 Equitable Total Rewards: Driving resilience and sustainability

Author

Global Innovation and Product Development Leader

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