2017 Compensation and Benefits – Highlights and Trends

by Bruce and Blair Johanson

Johanson Group completes several local, regional and national compensation and benefits surveys each year. As human resources and compensation professionals make employee total reward plans for 2018, we want to raise note-worthy highlights and trends based on the 2017 survey results. Instead of just offering competitive compensation and benefits plans, employers are beginning to utilize compensation and benefits strategically to attract and retain competent employees.

Compensation

  • Employee pay adjustments for 2017 will average 3% and merit pay budgets will average between 3.1% to 3.4%.
  • The average employee base pay adjustments for 2018 will increase slightly due to increasing employment demand.
  • Employee average merit budgets in 2018 will range from 3.2% to 3.6% but employers are on the move with increasing variable pay and bonus pay options.
  • National variable pay averages have increased to new historic levels as employers reward top performers. Variable pay plans tied to company performance are less risky and more flexible than increasing fixed base pay for employees through traditional merit pay plans.
  • Compensation management considerations including: Philosophy to lead or lag the market; Pay determined by market mean by job title; Internal pay structure and ranges through job valuing and use of market data to validate structure for pay competitiveness; Starting pay placement; Average years to pay range midpoint or market mean; Average increase in base pay for position promotions; Annual base pay adjustments – General/COLA/Merit; Annual or bi-annual pay range adjustment; Variable pay plans and types of plans and percentage increases of pay and non-compensation recognition and rewards.
  • Baby-boomers who are paid in the upper salary range of their respective pay grades are leaving the workplace at an accelerated pace. Employers will determine how to reallocate 3rd or 4th quartile pay range salary rates to existing and new employees who are working their way toward the top of the 2nd quartile and beyond.

Benefits

  • Employers are beginning to utilize compensation and benefits strategically to attract and retain competent employees and reward higher productivity.
  • Above average retirement plan matching contributions by employers and profit sharing distributions are effective employee retention tools. We have noticed employers that are making single digit percentage increases in retirement plan matching contributions that have double digit percentage increase outcomes on employee retirement fund growth and payouts.

We have a millennial aged family member that has worked nine years for a company since college graduation and his retirement/profit sharing fund is approaching $250,000. The level of retirement benefit funding has been a significant retention tool for this family member.

  • Employers will help employees with student loan debt through creative compensation and benefit packages.
  • Health insurance premium increases are partially mitigated by High Deductible Health Plan (HDHP) options with increasing deductibles and out of pocket maximums and increasing the cost-sharing percentages on monthly health insurance premium with employees.
  • Employers are using HSA contributions to help new employees with minimal personal savings to be prepared for unexpected medical expenses.
  • Increasing pharmaceutical expenses are being addressed with expanded funding tiers and maximum caps.
  • Paid Time Off (PTO) plans are becoming more popular with employers and employees over traditional sick and vacation time off plans.
  • On-site or off-site concierge services to help employees with personal planning so they can remain focused on work productivity.
  • Honing-in on effective employee wellness initiatives that involve individual and company-wide efforts to improve employee health indicators and reduce preventable health-related medical expenses.
  • Expanding employee assistance plans to include personal financial education and wellness.

Pay Equity

  • Under the new federal administration leadership, the OFCCP and EEOC are transitioning from a punitive focus to an employer friendly direction with educational and compliance assistance programs.
  • State laws are specifying pay equity and job comparable work definitions and compliance to further address gender and race pay equity gaps. Over 15 states have approved or tried to introduce legislation that further defines equal pay as being something more than just equal dollars between genders and protected groups.
  • The state of California passed a new law called the “California 2015 Fair Pay Act”. This law extends to definition of equal pay to comparable pay and requires employers to extend “comparable pay” for jobs that are substantially similar. There is a legal expectation that men and women should be paid comparable pay for work performed of the same value to the organization.
  • This next level definition and interpretation for equal pay or “comparable pay” will require employers to re-evaluate their positions/jobs based on different criteria. Job valuing needs to be completed with a consistent job valuing factors system that can value all job classifications and provide a non-biased compensable factors process to determine which jobs are substantially similar based on proven factors and weighted points.
  • With greater national and state level awareness of persistent pay equity gaps, employers are making more genuine efforts to identify and address systemic pay equity processes and decisions. An effective classification and compensation base pay structure is meant to attract and retain talented and competent employees. With increasing social and regulatory pressure to address the pay equity gaps between gender, race/ethnicity and age employee groups, employers are motivated to develop and maintain equitable, consistent and transparent compensation plans.
  • Computer software solutions like DBSquared’s DBCompensation provide job valuing technology and market pay assessment to build and maintain equitable pay structures and pay equity analysis.
  • Use of external market pay studies data only will perpetuate existing gender and race pay gaps. Employers will utilize internal job valuing and external pay analysis to generate more realistic job worth and employee pay equity evaluations.

Performance Reviews/Appraisals

  • A significant migration from traditional performance reviews and appraisals with numerical analyses and painful performance evaluation form completion processes to more frequent supervisor and employee verbal feedback sessions. Check-ins and one on one’s for real-time feedback. Higher performance and productivity and less turnover through more frequent communications and interactions.
  • Forward-looking performance perspective instead of discussing historical work reviews.
  • Greater work and project related effort alignment with team, department, division and organizational goals. Focusing on goal or project accomplishment (end result) instead of time in office and methods/steps to complete the goal or project.
  • Higher dollars and recognition/rewards for top performing teams and individuals.
  • Creative employee recognition rewards and increasing number of employee recognition reward vendors at the 2017 WorldatWork conference in Washington, DC.
  • Automation of the performance work related activities and outcomes through software technology integration with personnel files and use of mobile phone apps to record and electronically file observed or noted employee performance while walking around. Flexible and intuitive compensation management software offered by companies like HRsoft.
  • Establishment of top performance compensation pools (separate allocations of base pay and/or bonus dollars) that managers are able to allocate based on meeting or exceeding impactful organizational, team and individual goals.
  • Improved company, team and individual integration and roles view to increase line of sight and process metrics for timely project/goal interventions and support for successful outcomes.

Work-Life Programs

  • Performing business case studies for new work-life programs and their impact on the organization and its stakeholders.
  • Build supporting structure around work-life program processes to foster greater participation and success.
  • Increase productivity of working mothers, working parents and/or working single parents by providing work-life programs that support employees that must balance work and parenting requirements.
  • Greater workplace and work-time flexibility through mobile and/or home internet connectivity with the employer’s office.
  • Compressed work weeks and flexible work starting and ending times for improved alignment with personal/family needs.

Workplace Transitions

Engaging Millennials in the Workforce

  • Expectations, needs and engagement factors for greater attraction and retention of new hires.
  • Career development – visible paths for personal development and growth.
  • Company commitment to mission and vision for both short-term and long-term periods.
  • Communications and social media presence to foster company branding and engagement.
  • Benefits as solutions to enhance total rewards and improve alignment with employee needs.
  • Work fit analysis so new hires are able to make work related contributions from day one.
  • More frequent feedback and encouragement check-ins to foster trust and successful outcomes.

Graceful Exit for Baby Boomers

  • Succession planning and transfer of institutional and positional knowledge from exiting baby boomers to younger employees.
  • Strategic and progressive “exiting” plans that include full-time to part-time work schedules and less compensation.
  • Contractual independent contractor consulting agreements with retiring baby boomers.
  • Bridging benefit plans for early retirement employees and use of compensation actuarial budgeting for compensation management and budgeting.
  • Mentoring programs and internal company focused career development days for new hires that are led by exiting baby boomers and staff development professionals.