Future-Proofing Pay: Embracing Modern Compensation Strategies

The Future of Pay: Key Insights from Recent Studies

Our current pay strategies have not kept up with the times. We're trying to tackle the challenges of a new world of work with pay strategies that are over 80 years old and not fit for purpose. Here are some key insights from three recent reports from ADP, Josh Bersin, and BetterWorks that help to understand why we need to change how we approach pay.

BetterWorks: State of Performance Enablement

One of the most striking findings from this recent study is that close to 70% of participants thought that the performance management system is useless. We also know that this is a process which routinely generates discontent as reflected in employee engagement surveys. Yet, we continue to emphasize merit increases and incentive pay based on the achievement of individual objectives. Team-based bonuses, skill-based pay and flexible pay are possible ways to help replace existing models with ones better fit for this problem. 

Another interesting finding is the shift in what employees value most in their jobs. Flexibility and career progression have overtaken other considerations. Nearly three in ten workers (29%) now view the flexibility of hours as crucial. This highlights the growing demand for work arrangements that accommodate personal and professional expectations, and the need to create pay programs to support this trend. Pay for location, adjusting pay to hours worked, and flexible pay are potential avenues to address this.

ADP: People at Work 2023 - A Global Workforce View

According to this report, a significant 44% of workers feel they are underpaid for their job. This dissatisfaction with pay suggests that current compensation strategies are not meeting employees' expectations. Moreover, while salary increases are anticipated, the gap between expectation and reality is a source of frustration. Pay equity, in particular, is a concern. Not only for gender pay, but between older and newer employees. This is another case for paying for skills and competencies, and for flexible pay arrangements.

This report also highlights that flexibility is a major factor in employee satisfaction. The report shows that workers with hybrid working arrangements are the most satisfied with their flexibility (60%), while those working solely on-premise are the least happy (50%). This suggests that offering flexible work options can significantly enhance employee satisfaction and retention.

Mental health is another critical area of concern. While 64% of workers feel supported by their managers when it comes to mental health, a substantial 65% say that stress adversely affects their work. This raises an important question: What are companies doing about it? And is it enough? Employers must address mental health proactively to ensure a supportive work environment.

Josh Bersin: Why Corporate Pay Practices Feel Broken

Traditional methods of compensation are failing to keep pace with inflation and the cost of living. Nearly four in ten workers (39%) express a preference for additional paid leave over direct pay increases, and 32% favor shorter working weeks. These preferences highlight the need for companies to explore and implement more creative compensation strategies.

Bersin’s study also emphasizes the importance of addressing job security and career development. These factors are just as crucial as financial compensation in retaining top talent. Employees are looking for stability and opportunities for growth, which means that companies need to invest in comprehensive development programs and clear career progression paths.

Conclusions

The findings from these reports underscore a disconnect between current pay strategies and employee expectations. The traditional approaches to compensation are no longer sufficient to meet the diverse needs of today's workforce. Employers must recognize the value of flexibility, mental health support, and innovative compensation models to attract and retain talent.

Looking ahead, the trends indicate a shift towards more holistic compensation strategies. This includes not only financial rewards but also non-financial benefits that support work-life balance and personal well-being. Companies will need to adapt to these changes to be better positioned to motivate and engage their employees in the future.

In summary, our current pay strategies are outdated and inadequate for the modern workforce. With 44% of employees feeling underpaid and significant demand for flexibility and mental health support, it's clear that a new approach is needed.

Why are so many rewards professionals, even with these data on their hands, still so resistant to change? Why do we still depend on “best practices”, even as we know they are no longer working?As we move forward to a future of work where employment models will radically change, let's commit to rethinking and reshaping our compensation strategies to better align with the needs and expectations of our employees.