Top performing organizations value their people more, discuss compensation openly, embrace modern compensation practices and pay people based on their performance.

PayScale, Inc. the leader in cloud compensation has released the 2016 Compensation Best Practices Report (CBPR). Based on data from nearly 7,600 survey respondents representing executives, line of business managers and human resource practitioners, the report reflects current attitudes about compensation, business growth, hiring and retention.

The latest annual report shows that the most successful companies are adopting open conversations with employees about their salaries and implementing pay increases that reflect individual employees’ performance.

The research also shows that most employers consider retention to be their number one priority and they believe annual performance reviews are largely ineffective.

“We are in the midst of a sea change in the way companies think about compensation. More employers realize the importance of adopting innovative approaches to pay in order to retain the people who are making the largest impact,” said Mike Metzger, President and CEO at PayScale.

“Although these modern compensation practices require a cultural shift for many organizations, our research shows there is significant benefit in abandoning traditional compensation practices in favor of more transparency around compensation and variable pay practices that recognize an individual’s contribution to the business.”

Here are some of the key findings about pay practices and employer attitudes from the 2016 Compensation Best Practices Report:

• Top performing companies value their people more. The survey shows 86 percent of top performing companies agree with this statement, “our people are our greatest asset,” compared to 78 percent of average companies who agreed with the same statement.
• Nearly half of top performing companies have adopted open communication around pay. This number is higher than the 40 percent of average companies who report they have transparent pay policies.

See: Financial Institutions in Asia are adopting a Cautious Outlook towards Compensation for 2016: Mercer Reports

• Top performing companies are more likely to give bonuses to their employees. Last year, 81 percent of these highly successful companies reported giving bonuses (compared to 74 percent of average companies) and half of all top performing companies who gave bonuses in 2015 are increasing the size of their bonus budget in the coming year. In addition, top performing companies were nearly 5 percent more likely to give team bonuses than average companies.
• Variable pay based on performance is replacing traditional pay increases. In 2015, 74 percent of all companies gave bonuses, an increase of 5 percent over the previous two years. Performance based pay increases were the primary reason for giving raises, far more common than cost of living adjustments or employee promotions.
• There is a corporate chasm around transparency. When asked about communication around pay, 40 percent of employers reported their company was transparent, but only 21 percent of employees said their company had open discussions around pay.
• Retaining top employees was listed as the number one compensation priority for all survey respondents.
• The annual review is becoming passé. When asked to name the biggest HR trend in 2016, 44 percent of companies cited the move to abandon annual performance reviews in favor of a more frequent feedback model for employees.

“Increasingly, companies realize they no longer hold all the cards when it comes to pay and many of the tried and true HR methodologies for determining pay are ineffective in today’s competitive talent market,” said Lisa Rowan, Vice President of the HR and Talent Management Service at the analyst firm, IDC.

“These forward-thinking organizations want more innovative compensation management technologies to help them respond to changing market conditions in real-time and also to employ variable pay bonuses that reflect the relative value of employees to the company.”

Also read: Deliberating on the Best Executive Compensation Practices and Strategies in SEA: Kevin Ong Goes Candid

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