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www.payscale.com 1
2016 Compensation Best Practices Report
Escape to
2016 Compensation Best Practices Report
PAYSCALE RESEARCH REPORTPAYSCALE RESEARCH REPORT
www.payscale.com 2
Contents
Executive Summary										3
Survey Methodology										4
Welcome to Comptopia										5
Meet the Comptopians										5
Top 5 Insights from CBPR 2016									6
2015 Year in Review										7
Come Sail Away to 2016										14
The Corporate Chasm: A Few Coconuts Short						 17
Comptopians Tell All: What Top Performers Do Differently				 19
Variable Pay: A More Diverse Budget Bouquet						 22
Data Debate: Quality Eclipses Methodology							23
Millennial Island, Still Shipwrecked								24
Don’t Miss the Boat: Last Year is so Last Year							 25
About PayScale											26
www.payscale.com 3
Executive Summary
This marks the seventh year PayScale has analyzed compensation practices and published the
Compensation Best Practices Report (CBPR)—a comprehensive survey that reflects employers’
attitudes and perceptions about key business issues including compensation practices, raises,
incentive and variable pay, hiring trends, HR technology, and other topics related to effective
talent management. The 2016 CBPR represents PayScale’s largest research endeavor yet, as
we compiled responses from nearly 7,600 business leaders from companies of every size
across a wide section of industries.
For the first time, we compare top performing companies—defined as those who were first
in their industry and exceeded revenue projections in 2015—to all respondents, revealing a
correlation between modern pay practices and business success. Top performing companies
are more likely to embrace transparency, exercise variable pay practices, and report valuing
their employees more highly than average companies. This link allows top performers to
reach the desirable land of Comptopia—where smart pay practices drive business results, and
all comp woes are cast away.
The CBPR also shows that companies are optimistic for the future and expect 2016 to be
prosperous, with the majority of respondents expecting to see financial improvement.
Though hopes for 2016 are high overall, there are a few obstacles that have persisted year
over year. Employee retention continues to be a top concern for the majority of respondents
for the fourth year in a row. For the fifth year in a row, respondents cite compensation as a top
reason people voluntarily left a company.
This year’s results show that, despite buzz surrounding employee engagement, there is still
a chasm between employee and employer perceptions on many key issues: pay perceptions,
pay transparency, and employee value. Employee and employer perceptions did align in a few
areas, namely the impact of a manager on employee satisfaction and the value of investing in
learning and development.
The 2016 CBPR also reveals key shifts in attitudes around pay transparency, employee
engagement, and variable pay. Our data shows a steady increase in the number of companies
giving bonuses since 2013. We believe this trend of giving bonuses is the result of continued
low wages for employees and also a very competitive talent environment for companies in
certain industries.
www.payscale.com 4
Survey Methodology
Location					
The most recent Compensation Best Practices survey was conducted in November
and December 2015. There were nearly 7,600 respondents from across the globe.
The US, Canada and the UK had the largest number of respondents.
Company Size
Survey results were analyzed to create comparisons between small companies
(<100 employees), medium companies (100- 1,000 employees), and large
companies (1000+ employees) as well as comparisons by industry.	
Industry					
The top five industries represented in the survey were Manufacturing, Technology,
Medical & Healthcare, Nonprofit, and Education.
Job Level						
51% of respondents identified as managers, while 27% identified as vice president or
C-level. 22% identified as an individual contributor.
Welcome to Comptopia
In 2016, cast your compensation cares away and escape to an
idyllic island known as Comptopia. In this sparkling land, your pay
struggles melt away like an ice cream cone in a sizzling tropical
locale. Candidates accept your first offer and don’t try to use you
as leverage against a competitor’s offer. Hiring managers nod
agreeably when you recommend a salary. Market rate is no longer
a hazy mirage, but an accessible metric that appears magically at
your fingertips, on command. With this insider’s guide, you’ll get a
step-by-step map of what it takes to join the Comptopians, carefree
natives whose top performing practices make every day of their lives
a pay paradise.
Meet the Comptopians
Comptopians are those whose comp woes are whisked away
by putting compensation best practices into play. For the first
time ever, we compare the compensation practices of average
companies to those of top performing companies. Top performers
are defined as those who are number one in their industry and
exceeded revenue projections in 2015.
Top 5 Insights from CBPR 2016
While 73%of employers consider their employees fairly paid, only
36%of employees feel they are paid fairly.
For the fifth year in a row, compensation, aka “seeking higher pay
elsewhere,” was a top reason employees left companies, falling second
only to “personal reasons/life change” (marriage, spouse relocating,
parenthood, etc.)
Almost 40%of companies report that theyhave transparent, open
communication around pay.Top performing companies are significantly
more likelyto embrace transparency, at 47%.
Top performers pay their people. In 2015, 90%of top performers gave
pay raises compared to 84%of average companies.
44%of respondents cited replacing traditional annual performance
reviews with ongoing, real-time feedback as the hottest HR trend for 2016.
www.payscale.com 7
2015 Year in Review
In 2015, 84% of average companies and 90% of top
performing companies gave pay increases. Small
companies were less likely to give pay raises, at just
under 80%. Nearly 87% of both large and medium sized
companies gave raises in 2015. 89% of companies in the
Retail & Customer Service Industry gave raises in 2015,
while only 78% of those in the Education Industry gave
raises.
Of those who gave raises, 39% of average companies
and 42% of top performing companies gave increases
to 96-100% of their employees. Nearly 80% of average
companies and top performing companies alike gave an
average increase amount of a 0-5%. Only 14% of average
companies and 15% of top performing companies who
gave raises in 2015 reported giving average increases in the
range of 6-10%.
Compensation Structures:
Who’s on First?
The Head of HR was still most likely to be responsible for
setting compensation structures in 2015, with this being
the norm in nearly 50% of average companies and 55%
of top performing companies. However, CEOs were most
likely to set compensation structures in small companies,
at 53%, while less than 20% of large companies report this
being a CEO’s task. The majority of medium companies
report that the Head of HR is responsible for setting
compensation structures (65%).
In 2015,
90%
of top performing
companies gave
increases.
www.payscale.com 8
For the majority of small and medium companies, CEOs
continue to set the compensation budget. In large
companies, we see this trend shift, as only 36% report
that this is the CEO’s responsibility. CEOs only slightly
edge out CFOs in this area at medium companies, with
49% of medium companies reporting that this is a CFO
responsibility and 52% saying it belongs to the CEO.
The landscape also varied when it came to the
employment of dedicated compensation professionals,
either internal or external. Small and medium companies
reported being unlikely to have an internal compensation
professional or external compensation consultant setting
compensation structures. Only 5% of large companies
report hiring an external compensation consultant
to set compensation structures; however, 32% report
that compensation structures are set by an internal
compensation professional.
Nearly 65% of all average companies believe HR and
Finance should remain independent, stating they believe
HR should report to the CEO. Less than 8% of average
companies and top performing companies alike report
that they believe HR should report to Finance. This belief is
consistent across companies of all sizes and industries.
Who Uses Salary Ranges?
Assigning salary ranges to groups of jobs (grades) is the
most common reported way of structuring compensation,
at 40%. Small companies are least likely (30%) to structure
comp this way; as 44% of small companies structure
compensation by individual salary ranges for each position
instead.
Nearly
65%
of all average
companies believe
HR and Finance
should remain
independent.
www.payscale.com 9
Strategy and Structure
38% of average companies report having a formal
compensation strategy, compared to 49% of top
performing companies. Large companies were nearly twice
as likely as small companies to have a formal compensation
structure.
The War for Talent Rages on
The skills gap conversation continues, as 55% of all
companies believe there is still a lack of qualified applicants
for open job positions—this is true for top performing
companies as well. As usual, the talent wars are felt most
keenly in the Technology Industry. More than 70% of
respondents in the Science & Engineering Industry believe
that there is a lack of qualified applicants for open positions,
while only 44% of respondents in the Nonprofit Industry
believe this to be true.
Percentage of companies that believe there is a lack
of qualified applicants for open job positions
Business &
Marketing
Engineering
& Science
Retail &
Customer Serv.
Education Manufacturing Medical &
Healthcare
Nonprofit Technology
50%
71%
58%
47%
65%
56%
44%
59%
For positions that have remained open for more than six
months, we see these numbers increase significantly.
For these positions, nearly 64% of average companies
cite “scarcity of qualified applicants” as the reason those
positions remained unfilled. This number increases to more
55%
of companies
believe there is
still a skills gap.
www.payscale.com 10
than 70% for top performing companies. Nearly 80% of
respondents in the Science & Engineering Industry cite this
as the reason for positions being open for six months or
more, while less than 50% of respondents in the Education
and Nonprofit industries cite this as the reason.
Is Money the Answer?
Less than 23% of all respondents believe that the inability
to offer a competitive wage was the reason positions
remained unfilled for six months or more. Small companies
were least likely, 22%, and large companies were more
likely, 26%, to cite this as a reason. Only 14% of respondents
from the Science & Engineering Industry blame competitive
wages as the culprit, while 41% of those in the Education
Industry and 33% of those in the Nonprofit Industry cite
lack of ability to offer competitive wages as their primary
obstacle to recruiting top talent.
Some positions are harder to fill than others. 23% of
average companies and top performing companies alike
report having the most difficult time filling open positions
in IT. Only 7% of average and top performing companies
alike have the most difficult time filling positions in
marketing.
Large companies were most likely to have positions open
for six months or more, at 54%, while small companies
were least likely, at 24%. Respondents in the Science &
Engineering Industry were, once again, most likely to
have positions open for six months or more, at 47%, while
respondents in the Nonprofit Industry were least likely, at
26%.
23%
of average
companies and
top performing
companies alike
report having
the most difficult
time filling open
positions in IT.
www.payscale.com 11
Open Positions for 6 Months or More
Less than 100
Employees
100-1,000
Employees
More than 1,000
Employees
24% 40% 54%
For competitive jobs, more than half of average companies
and 61% of top performing companies report paying more
for competitive jobs (i.e.: above the 50th percentile, or
market rate). 67% of respondents from the Technology
Industry report paying more for competitive jobs. 38%
of respondents in the Technology Industry classified
more than half of their jobs as competitive, while 43%
of respondents in the Science & Engineering Industry
classified more than half of their jobs as competitive.
Although employer opinions vary by industry on whether
compensation is the reason they can’t recruit, the majority
report it’s the reason they can’t retain. For the fifth year in a
row, companies cited compensation—defined as ‘seeking
higher pay offer elsewhere’—as a top reason for voluntarily
leaving a company, second only to personal reasons
(family, marriage, health, school, etc.).
The majority of
employers cite
compensation
as the greatest
obstacle to
retention.
www.payscale.com 12
Company Growth Gap: The Big Get
Bigger; the Small Stay Small
Large companies were most likely to experience growth
in 2015, at 62%, while small companies were least likely to
experience growth.
Changes in Organization Size: 2015 and Comparison to
Previous Years
•	 As shown in the chart below, more organizations grew
in 2015 than in 2014, 2013, 2012, and 2011.
•	 The change seems to indicate continued improvement
in the economy, as most companies experienced
growth in 2015.
Change in Organization’s Size: 2011 - 2015
56%
20152011 2012 2013 2014
34%
10%
37%
49%
14%
50%
32%
18%
52%
38%
9%
55%
36%
9%
Increased Stayed the Same Decreased
Change in Company Size in 2015 for Top Performing
Companies
•	 When comparing top performing companies to average
companies, we see that top performing companies were
much more likely to have experienced growth than
average companies in 2015.
•	 As the chart below indicates, the majority of top
performing companies grew in 2015 and only a slight
percentage reported a decrease in size.
www.payscale.com 13
Increased Decreased Stayed the Same
69% 4% 27%
Change in Organization Size in 2015 by Company Size
•	 Only 10% of companies reported a decrease in size in
2015—regardless of company size.
•	 As the chart below indicates, small companies (<100
employees) were most likely to stay the same size in
2015, while large companies (>1,000 employees) were
most likely to increase their size.
Change in Organization’s Size in 2015 by Company Size
About the Same size Have Grown Have Gotten Smaller
38%
31%
28%
51%
59%
62%
11% 10% 10%
Small Medium Large
Change in Company Size by Industry
•	 The Retail & Customer Service Industry, the Technology
Industry, and the Science & Engineering Industry were
the top three industries to have experienced growth in
2015.
•	 Respondents in the Manufacturing Industry were the
most likely to report a decrease in size in 2015.
•	 Respondents in the Education Industry were most likely
to report having stayed the same size in 2015.
www.payscale.com 14
Change to
Workforce
Increase Stay the Same Decrease
Business and
Marketing
59% 32% 9%
Science and
Engineering
61% 27% 13%
Retail and
Customer
Service
62% 31% 7%
Education 45% 45% 10%
Manufacturing 54% 32% 14%
Medical and
Healthcare
60% 35% 5%
Nonprofit 47% 35% 8%
Tech 63% 25% 12%
Other 54% 34% 12%
Come Sail Away to 2016
In 2016, the horizon looks bright. The majority of
employers are hopeful about the future, with 71%
expecting their financial situation to improve in 2016,
and only 6% expecting it to weaken. Top performers are
more optimistic than most. 78% of top performers expect
financial performance to improve, and only 3% expect it to
weaken.
71%
of employers
are expecting
their financial
situation to
improve in 2016.
www.payscale.com 15
Smaller companies are slightly more optimistic than
medium and large companies with 73% of respondents
expecting improvement versus 70% of respondents from
medium-sized companies, and 65% of respondents from
large companies. The Science & Engineering Industry is
most optimistic, with 87% expecting improvement to their
financial situation in 2016. The Education Industry is less
optimistic with 54% expecting improvement.
Percentage of Companies Expecting Financial
Improvements in 2016 by Industry
Business &
Marketing
Engineering
& Science
Retail &
Customer Serv.
Education Manufacturing Medical &
Healthcare
Nonprofit Technology
78%
87%
77%
54%
72%
69%
58%
82%
Some trends persist from past years. Retention remains a
top or high concern amongst the majority of employers
(57%) for the fourth year in a row. However, retention
concerns aren’t translating into raises. Only 8% of
respondents report ‘retention’ as the main reason they will
give raises in 2016. The percentage of companies giving
raises as a retention effort significantly increases when
looking at the Science & Engineering Industry (17%) as well
as the Technology Industry (12%).
Both industries report more than half of their jobs are
competitive and cite difficulty filling open positions due
to a lack of talent. More than 65% of respondents in the
Science & Engineering Industry cite retention as a top or
high concern for 2016 and nearly 70% from the Technology
Industry echo this sentiment.
70%
of technology
industry
employers cited
retention as a top
or high concern.
Retention remains
a top or high
concern amongst
the majority of
employers
(57%)
for the fourth year
in a row.
www.payscale.com 16
Concerns about employee retention increased between
2009 and 2013. While the trend has leveled off somewhat
in the last 12 months—with no increase over the last year—
it would be a mistake to infer that retention is a non-issue.
The fact remains; the majority of employers (57%) are still
worried about keeping their employees.
2009
70%
60%
50%
40%
30%
20%
10%
0%
2010 2011 2012 2013 2014 2015 2016
Percent High or Top Concern
28%
20%
47% 49%
59% 57% 57% 57%
Employee Retention Concerns Over Time
Medium-sized companies were most concerned about
retention, at 61%.
Ahoy Increases!
87% of average companies and 94% of top performers
plan to give raises in 2016. However, of those who plan
to give raises, 77% percent of average companies and top
performers alike expect the average raise given to be from
0-5%. The Technology Industry plans to give the highest
raises, with 19% of respondents reporting they plan to give
average raises in the range of 6-10%.
Bonuses continue to be a popular option, as 74% report
giving bonuses, up more than 5% since 2013. Respondents
in the Science & Engineering Industry were most likely to
give bonuses, at 85%.
Medium-sized
companies were
most concerned
about
retention, at
61%
www.payscale.com 17
The Corporate Chasm: A
Few Coconuts Short
Despite an increased HR spotlight on employee
engagement, it remains more of a buzzword than an
actual business practice. Associate surveys aren’t cutting it.
Employers are still severely out of touch with the needs and
feelings of their employees. Our data reveals a vast chasm
between employer and employee perceptions around
almost every key engagement metric: pay, transparency,
and overall job satisfaction.
Employers Employees
Believe that employees
at their company are
paid fairly.
73% 36%
Believe that employees
are valued at work
78% 45%
Report that their
company is transparent
about pay
40% 21%
On average, nearly 73% of employers believe their
employees are paid fairly. Top performing companies are
even more confident, coming in at 83%.
However, 64% of employees disagree, stating they are paid
“below average” compared to their colleagues in similar
roles.
Similarly, nearly 40% of employers report that they have
transparent, open communication around salary, but only
Our data reveals
a vast chasm
between employer
and employee
perceptions
around almost
every key
engagement
metric.
“
”
www.payscale.com 18
21% of employees “agree” or “strongly agree.” Even so, few
employers plan to change their non-transparent ways: less
than one in five non-transparent companies are planning
to embrace this pay practice in 2016.
However, there were areas where employees and
employers were aligned. 35% of employers cited animosity
with a direct supervisor or manager as one of the top
three reasons employees left in 2015. This lines right up
with employee sentiment, as 67% of respondents report
that having a great relationship with their direct manager
is critical to their job satisfaction. Bottom line: everyone
agrees that managers can make or break an employee’s
experience. Businesses would do well to choose their
leaders carefully.
There was also a similar alignment on the importance of
learning and development. 45% of employees “agree”
or “strongly agree” that their employer provides them
with enough opportunity for learning and development.
Employers confirm this, as 58% of companies plan on
offering learning and development opportunities in 2016
to help recruit and retain high-value employees. Moral of
the story? Both employers and employees are wising up to
the fact that learning and development can be one of the
most valuable perks. This makes sense—continuing training
and education can improve not just an employee’s current
salary, but future compensation down the line. Luckily,
employers are prepared to accommodate this trend.
35%
of employers cited
animosity with a
direct supervisor
or manager as
one of the top
three reasons
employees left in
2015.
www.payscale.com 19
Comptopians Tell All:
What Top Performers Do
Differently
Top performing companies are more likely to pay fairly,
practice pay transparency, and embrace variable pay—49%
of top performers report having a formal compensation
strategy versus only 38% of average companies. Top
performers also report valuing their employees more highly
than average companies and are more likely to invest in top
talent—61% are willing to pay above the 50th percentile for
competitive jobs.
Top performers by industry
Here are the industries with the most top performing
companies:
Manufacturing Technology Nonprofit
16% 11% 11%
While some companies still tremble at the thought of
practices like paytransparency,with the risk comes reward.
The data shows a distinct correlation between modern pay
practices and business success, as top performerswere
defined as companies thatwere numberone in theirindustry
and exceeded theirrevenue goals in 2015.
61%
of top performers
are willing to pay
above the 50th
percentile for
competitive jobs.
www.payscale.com 20
Average
companies
Top performing
companies
Embrace
transparent
communication
around pay
40% 47%
Give bonuses 74% 81%
Give team bonuses 26% 30%
Agree “our people
are our best asset”
78% 86%
Are increasing their
budget for bonuses
in 2016
41% 50%
Provide a total
rewards statement
for compensation
39% 47%
Transparency: More Talk, Less
Treasure
As mentioned above, 40% of employers reported having
transparent, open communication around compensation.
This number in itself is striking. What’s even more intriguing
is how the number increases when you look at top
performers, 47% of whom embrace pay transparency.
The data shows
a distinct
correlation
between modern
pay practices and
business success.
www.payscale.com 21
Not every company is equipped to embrace transparency.
While 35% of companies report offering training to
managers to teach them how to talk to employees
about compensation, only 17% of companies report
being very confident in managers’ abilities to have
tough conversations about compensation. Only 11% of
respondents from the Manufacturing Industry and 10% of
respondents from medium-sized companies are confident
in their managers’ ability to talk pay.
When it comes to transparency, employers would do well
to arm their troops. Not only does the CBPR data show that
top performers practice transparency, a separate PayScale
survey of 71,000 employees found that 82% of employees
would feel satisfied with below-market pay, as long as their
employer was transparent about the reasons.
Moral of the story? Don’t assume more money is the
answer. Try additional communication before resorting to
additional compensation. Train your people to have those
conversations.
82%
of employees
would feel
satisfied with
below-market
pay, as long as
their employer
was transparent
about the
reasons.
View the
infographic!
www.payscale.com 22
Variable Pay: A More
Diverse Budget Bouquet
Contrary to popular belief, it’s actually not all about that
base. Merit still matters most, with 50% of employers giving
raises based on performance. However, bonuses are also
a strong focus for compensation plans this year. In fact,
the proportion of companies who report giving bonuses
has steadily increased over the last four years, up to 74%,
compared to 69% of respondents in 2013.
Top performing companies are more likely to give bonuses
to their employees, as 81% of top performers gave bonuses
in 2015, compared to 74% average companies. Top
performers are also increasing their average bonus size at
a greater rate. Nearly half of all top performing companies
who give bonuses are increasing the size of their bonus
budget in the coming year.
There is also more creativity and variety to the type of
bonuses administered by top performers. For example,
top performing companies are more likely to provide
“team incentive bonuses” to their employees. 30% of top
performing companies report providing team incentive
bonuses, compared to 26% overall.
81%
of top performing
companies give
bonuses, as
opposed to
74%
overall.
Top performing
companies also
offer more of a
compensation mix
than the average
company.
www.payscale.com 23
Top performing companies also offer more of a
compensation mix than average companies. They
offer everything from merit-based pay plans, to non-
discretionary incentive-based pay plans, to discretionary
bonus plans, stock options, learning and developmental
opportunities, as well as other perks like gym memberships
or catered lunches.
Data Debate: Quality
Eclipses Methodology
More than half of companies reported being open to both
employer-submitted data and employee-submitted data,
as long as the data is accurate and fresh. This compares
to 20% of companies that reported preferring employer-
submitted data because it’s what they’ve been using for
years. Lastly, only 14% of companies felt that employee-
submitted data is unreliable because “employees can’t be
trusted to tell the truth about their salaries.”
Speaking of Data…
58% of all companies reported using online salary data
to set salaries, but less than 40% of those respondents
reported paying for the data. However, nearly 65% of top
performing companies reported using online salary data to
set salaries and nearly 45% of top performing companies
who use online salary data pay for that data, helping to
ensure fresh, reliable data.
More than half
of companies
report having
no preference
between employer-
submitted data
and employee-
submitted data.
www.payscale.com 24
Is it time to jump ship on traditional
salary surveys?
Nearly 41% of all respondents report using traditional salary
survey data to set salaries; however only 27% of those using
traditional surveys, associate data, or a consultant to set
salaries report being ‘very satisfied’ with their current salary
market data. Additionally, nearly 30% of respondents report
that they do not participate in any traditional compensation
surveys. Of those that do participate in traditional
compensation surveys, nearly 20% of respondents are
spending three days to two weeks filling out compensation
surveys.
Millennial Island, Still
Shipwrecked
As the 2015 CBPR also found, millennials are yet to steer
the ship. More than 50% of average companies are not
changing compensation strategies to accommodate
millennials. However, these numbers are different for
top performing companies, as nearly 35% stated they are
changing compensation strategies. For those changing
strategies, many cited changes in paid time off policies,
wellness benefits, and increases in philanthropic and
diversity initiatives.
More than
50%
of average
companies will
not change
compensation
strategies to
accommodate
millennials.
Only
27%
of those using
traditional surveys,
associate data,
or a consultant
to set salaries
report being ‘very
satisfied’ with their
current salary
market data.
www.payscale.com 25
Don’t Miss the Boat: Last
Year is so Last Year
Our final statistic addresses the rising trend of real-time
communication. When asked what the biggest trend that
would shake up the HR world next year would be, 44% of
all companies cited eliminating traditional performance
reviews in favor of real-time feedback. Could a change in
tide be headed HR’s way?
Visit the interactive experience to get a high-level view of
how companies view their performance.
Want more? Don’t forget to register for
PayScale’s 2016 Compensation Best Practices
Report Highlights Webinar. CLICK HERE!
www.payscale.com 26
About PayScale
Cloud software, crowdsourced data and unique algorithms
power the world’s largest real-time database of rich salary
profiles giving PayScale the unique ability to provide job
seekers and employers alike immediate visibility into the
right pay for any position. PayScale’s cloud compensation
software is used by more than 3,500 customers including
Bloomberg BNA, Cummins, Intercom, Clemson University
and Signature HealthCARE.
Get a Demo
Further Resources
Employee Engagement Infographic
Transparency Best Practices Webinar
Turnover: The Good, the Bad, and the Ugly

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Comptopia: Pay Practices of Top Performers

  • 1. www.payscale.com 1 2016 Compensation Best Practices Report Escape to 2016 Compensation Best Practices Report PAYSCALE RESEARCH REPORTPAYSCALE RESEARCH REPORT
  • 2. www.payscale.com 2 Contents Executive Summary 3 Survey Methodology 4 Welcome to Comptopia 5 Meet the Comptopians 5 Top 5 Insights from CBPR 2016 6 2015 Year in Review 7 Come Sail Away to 2016 14 The Corporate Chasm: A Few Coconuts Short 17 Comptopians Tell All: What Top Performers Do Differently 19 Variable Pay: A More Diverse Budget Bouquet 22 Data Debate: Quality Eclipses Methodology 23 Millennial Island, Still Shipwrecked 24 Don’t Miss the Boat: Last Year is so Last Year 25 About PayScale 26
  • 3. www.payscale.com 3 Executive Summary This marks the seventh year PayScale has analyzed compensation practices and published the Compensation Best Practices Report (CBPR)—a comprehensive survey that reflects employers’ attitudes and perceptions about key business issues including compensation practices, raises, incentive and variable pay, hiring trends, HR technology, and other topics related to effective talent management. The 2016 CBPR represents PayScale’s largest research endeavor yet, as we compiled responses from nearly 7,600 business leaders from companies of every size across a wide section of industries. For the first time, we compare top performing companies—defined as those who were first in their industry and exceeded revenue projections in 2015—to all respondents, revealing a correlation between modern pay practices and business success. Top performing companies are more likely to embrace transparency, exercise variable pay practices, and report valuing their employees more highly than average companies. This link allows top performers to reach the desirable land of Comptopia—where smart pay practices drive business results, and all comp woes are cast away. The CBPR also shows that companies are optimistic for the future and expect 2016 to be prosperous, with the majority of respondents expecting to see financial improvement. Though hopes for 2016 are high overall, there are a few obstacles that have persisted year over year. Employee retention continues to be a top concern for the majority of respondents for the fourth year in a row. For the fifth year in a row, respondents cite compensation as a top reason people voluntarily left a company. This year’s results show that, despite buzz surrounding employee engagement, there is still a chasm between employee and employer perceptions on many key issues: pay perceptions, pay transparency, and employee value. Employee and employer perceptions did align in a few areas, namely the impact of a manager on employee satisfaction and the value of investing in learning and development. The 2016 CBPR also reveals key shifts in attitudes around pay transparency, employee engagement, and variable pay. Our data shows a steady increase in the number of companies giving bonuses since 2013. We believe this trend of giving bonuses is the result of continued low wages for employees and also a very competitive talent environment for companies in certain industries.
  • 4. www.payscale.com 4 Survey Methodology Location The most recent Compensation Best Practices survey was conducted in November and December 2015. There were nearly 7,600 respondents from across the globe. The US, Canada and the UK had the largest number of respondents. Company Size Survey results were analyzed to create comparisons between small companies (<100 employees), medium companies (100- 1,000 employees), and large companies (1000+ employees) as well as comparisons by industry. Industry The top five industries represented in the survey were Manufacturing, Technology, Medical & Healthcare, Nonprofit, and Education. Job Level 51% of respondents identified as managers, while 27% identified as vice president or C-level. 22% identified as an individual contributor.
  • 5. Welcome to Comptopia In 2016, cast your compensation cares away and escape to an idyllic island known as Comptopia. In this sparkling land, your pay struggles melt away like an ice cream cone in a sizzling tropical locale. Candidates accept your first offer and don’t try to use you as leverage against a competitor’s offer. Hiring managers nod agreeably when you recommend a salary. Market rate is no longer a hazy mirage, but an accessible metric that appears magically at your fingertips, on command. With this insider’s guide, you’ll get a step-by-step map of what it takes to join the Comptopians, carefree natives whose top performing practices make every day of their lives a pay paradise. Meet the Comptopians Comptopians are those whose comp woes are whisked away by putting compensation best practices into play. For the first time ever, we compare the compensation practices of average companies to those of top performing companies. Top performers are defined as those who are number one in their industry and exceeded revenue projections in 2015.
  • 6. Top 5 Insights from CBPR 2016 While 73%of employers consider their employees fairly paid, only 36%of employees feel they are paid fairly. For the fifth year in a row, compensation, aka “seeking higher pay elsewhere,” was a top reason employees left companies, falling second only to “personal reasons/life change” (marriage, spouse relocating, parenthood, etc.) Almost 40%of companies report that theyhave transparent, open communication around pay.Top performing companies are significantly more likelyto embrace transparency, at 47%. Top performers pay their people. In 2015, 90%of top performers gave pay raises compared to 84%of average companies. 44%of respondents cited replacing traditional annual performance reviews with ongoing, real-time feedback as the hottest HR trend for 2016.
  • 7. www.payscale.com 7 2015 Year in Review In 2015, 84% of average companies and 90% of top performing companies gave pay increases. Small companies were less likely to give pay raises, at just under 80%. Nearly 87% of both large and medium sized companies gave raises in 2015. 89% of companies in the Retail & Customer Service Industry gave raises in 2015, while only 78% of those in the Education Industry gave raises. Of those who gave raises, 39% of average companies and 42% of top performing companies gave increases to 96-100% of their employees. Nearly 80% of average companies and top performing companies alike gave an average increase amount of a 0-5%. Only 14% of average companies and 15% of top performing companies who gave raises in 2015 reported giving average increases in the range of 6-10%. Compensation Structures: Who’s on First? The Head of HR was still most likely to be responsible for setting compensation structures in 2015, with this being the norm in nearly 50% of average companies and 55% of top performing companies. However, CEOs were most likely to set compensation structures in small companies, at 53%, while less than 20% of large companies report this being a CEO’s task. The majority of medium companies report that the Head of HR is responsible for setting compensation structures (65%). In 2015, 90% of top performing companies gave increases.
  • 8. www.payscale.com 8 For the majority of small and medium companies, CEOs continue to set the compensation budget. In large companies, we see this trend shift, as only 36% report that this is the CEO’s responsibility. CEOs only slightly edge out CFOs in this area at medium companies, with 49% of medium companies reporting that this is a CFO responsibility and 52% saying it belongs to the CEO. The landscape also varied when it came to the employment of dedicated compensation professionals, either internal or external. Small and medium companies reported being unlikely to have an internal compensation professional or external compensation consultant setting compensation structures. Only 5% of large companies report hiring an external compensation consultant to set compensation structures; however, 32% report that compensation structures are set by an internal compensation professional. Nearly 65% of all average companies believe HR and Finance should remain independent, stating they believe HR should report to the CEO. Less than 8% of average companies and top performing companies alike report that they believe HR should report to Finance. This belief is consistent across companies of all sizes and industries. Who Uses Salary Ranges? Assigning salary ranges to groups of jobs (grades) is the most common reported way of structuring compensation, at 40%. Small companies are least likely (30%) to structure comp this way; as 44% of small companies structure compensation by individual salary ranges for each position instead. Nearly 65% of all average companies believe HR and Finance should remain independent.
  • 9. www.payscale.com 9 Strategy and Structure 38% of average companies report having a formal compensation strategy, compared to 49% of top performing companies. Large companies were nearly twice as likely as small companies to have a formal compensation structure. The War for Talent Rages on The skills gap conversation continues, as 55% of all companies believe there is still a lack of qualified applicants for open job positions—this is true for top performing companies as well. As usual, the talent wars are felt most keenly in the Technology Industry. More than 70% of respondents in the Science & Engineering Industry believe that there is a lack of qualified applicants for open positions, while only 44% of respondents in the Nonprofit Industry believe this to be true. Percentage of companies that believe there is a lack of qualified applicants for open job positions Business & Marketing Engineering & Science Retail & Customer Serv. Education Manufacturing Medical & Healthcare Nonprofit Technology 50% 71% 58% 47% 65% 56% 44% 59% For positions that have remained open for more than six months, we see these numbers increase significantly. For these positions, nearly 64% of average companies cite “scarcity of qualified applicants” as the reason those positions remained unfilled. This number increases to more 55% of companies believe there is still a skills gap.
  • 10. www.payscale.com 10 than 70% for top performing companies. Nearly 80% of respondents in the Science & Engineering Industry cite this as the reason for positions being open for six months or more, while less than 50% of respondents in the Education and Nonprofit industries cite this as the reason. Is Money the Answer? Less than 23% of all respondents believe that the inability to offer a competitive wage was the reason positions remained unfilled for six months or more. Small companies were least likely, 22%, and large companies were more likely, 26%, to cite this as a reason. Only 14% of respondents from the Science & Engineering Industry blame competitive wages as the culprit, while 41% of those in the Education Industry and 33% of those in the Nonprofit Industry cite lack of ability to offer competitive wages as their primary obstacle to recruiting top talent. Some positions are harder to fill than others. 23% of average companies and top performing companies alike report having the most difficult time filling open positions in IT. Only 7% of average and top performing companies alike have the most difficult time filling positions in marketing. Large companies were most likely to have positions open for six months or more, at 54%, while small companies were least likely, at 24%. Respondents in the Science & Engineering Industry were, once again, most likely to have positions open for six months or more, at 47%, while respondents in the Nonprofit Industry were least likely, at 26%. 23% of average companies and top performing companies alike report having the most difficult time filling open positions in IT.
  • 11. www.payscale.com 11 Open Positions for 6 Months or More Less than 100 Employees 100-1,000 Employees More than 1,000 Employees 24% 40% 54% For competitive jobs, more than half of average companies and 61% of top performing companies report paying more for competitive jobs (i.e.: above the 50th percentile, or market rate). 67% of respondents from the Technology Industry report paying more for competitive jobs. 38% of respondents in the Technology Industry classified more than half of their jobs as competitive, while 43% of respondents in the Science & Engineering Industry classified more than half of their jobs as competitive. Although employer opinions vary by industry on whether compensation is the reason they can’t recruit, the majority report it’s the reason they can’t retain. For the fifth year in a row, companies cited compensation—defined as ‘seeking higher pay offer elsewhere’—as a top reason for voluntarily leaving a company, second only to personal reasons (family, marriage, health, school, etc.). The majority of employers cite compensation as the greatest obstacle to retention.
  • 12. www.payscale.com 12 Company Growth Gap: The Big Get Bigger; the Small Stay Small Large companies were most likely to experience growth in 2015, at 62%, while small companies were least likely to experience growth. Changes in Organization Size: 2015 and Comparison to Previous Years • As shown in the chart below, more organizations grew in 2015 than in 2014, 2013, 2012, and 2011. • The change seems to indicate continued improvement in the economy, as most companies experienced growth in 2015. Change in Organization’s Size: 2011 - 2015 56% 20152011 2012 2013 2014 34% 10% 37% 49% 14% 50% 32% 18% 52% 38% 9% 55% 36% 9% Increased Stayed the Same Decreased Change in Company Size in 2015 for Top Performing Companies • When comparing top performing companies to average companies, we see that top performing companies were much more likely to have experienced growth than average companies in 2015. • As the chart below indicates, the majority of top performing companies grew in 2015 and only a slight percentage reported a decrease in size.
  • 13. www.payscale.com 13 Increased Decreased Stayed the Same 69% 4% 27% Change in Organization Size in 2015 by Company Size • Only 10% of companies reported a decrease in size in 2015—regardless of company size. • As the chart below indicates, small companies (<100 employees) were most likely to stay the same size in 2015, while large companies (>1,000 employees) were most likely to increase their size. Change in Organization’s Size in 2015 by Company Size About the Same size Have Grown Have Gotten Smaller 38% 31% 28% 51% 59% 62% 11% 10% 10% Small Medium Large Change in Company Size by Industry • The Retail & Customer Service Industry, the Technology Industry, and the Science & Engineering Industry were the top three industries to have experienced growth in 2015. • Respondents in the Manufacturing Industry were the most likely to report a decrease in size in 2015. • Respondents in the Education Industry were most likely to report having stayed the same size in 2015.
  • 14. www.payscale.com 14 Change to Workforce Increase Stay the Same Decrease Business and Marketing 59% 32% 9% Science and Engineering 61% 27% 13% Retail and Customer Service 62% 31% 7% Education 45% 45% 10% Manufacturing 54% 32% 14% Medical and Healthcare 60% 35% 5% Nonprofit 47% 35% 8% Tech 63% 25% 12% Other 54% 34% 12% Come Sail Away to 2016 In 2016, the horizon looks bright. The majority of employers are hopeful about the future, with 71% expecting their financial situation to improve in 2016, and only 6% expecting it to weaken. Top performers are more optimistic than most. 78% of top performers expect financial performance to improve, and only 3% expect it to weaken. 71% of employers are expecting their financial situation to improve in 2016.
  • 15. www.payscale.com 15 Smaller companies are slightly more optimistic than medium and large companies with 73% of respondents expecting improvement versus 70% of respondents from medium-sized companies, and 65% of respondents from large companies. The Science & Engineering Industry is most optimistic, with 87% expecting improvement to their financial situation in 2016. The Education Industry is less optimistic with 54% expecting improvement. Percentage of Companies Expecting Financial Improvements in 2016 by Industry Business & Marketing Engineering & Science Retail & Customer Serv. Education Manufacturing Medical & Healthcare Nonprofit Technology 78% 87% 77% 54% 72% 69% 58% 82% Some trends persist from past years. Retention remains a top or high concern amongst the majority of employers (57%) for the fourth year in a row. However, retention concerns aren’t translating into raises. Only 8% of respondents report ‘retention’ as the main reason they will give raises in 2016. The percentage of companies giving raises as a retention effort significantly increases when looking at the Science & Engineering Industry (17%) as well as the Technology Industry (12%). Both industries report more than half of their jobs are competitive and cite difficulty filling open positions due to a lack of talent. More than 65% of respondents in the Science & Engineering Industry cite retention as a top or high concern for 2016 and nearly 70% from the Technology Industry echo this sentiment. 70% of technology industry employers cited retention as a top or high concern. Retention remains a top or high concern amongst the majority of employers (57%) for the fourth year in a row.
  • 16. www.payscale.com 16 Concerns about employee retention increased between 2009 and 2013. While the trend has leveled off somewhat in the last 12 months—with no increase over the last year— it would be a mistake to infer that retention is a non-issue. The fact remains; the majority of employers (57%) are still worried about keeping their employees. 2009 70% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 Percent High or Top Concern 28% 20% 47% 49% 59% 57% 57% 57% Employee Retention Concerns Over Time Medium-sized companies were most concerned about retention, at 61%. Ahoy Increases! 87% of average companies and 94% of top performers plan to give raises in 2016. However, of those who plan to give raises, 77% percent of average companies and top performers alike expect the average raise given to be from 0-5%. The Technology Industry plans to give the highest raises, with 19% of respondents reporting they plan to give average raises in the range of 6-10%. Bonuses continue to be a popular option, as 74% report giving bonuses, up more than 5% since 2013. Respondents in the Science & Engineering Industry were most likely to give bonuses, at 85%. Medium-sized companies were most concerned about retention, at 61%
  • 17. www.payscale.com 17 The Corporate Chasm: A Few Coconuts Short Despite an increased HR spotlight on employee engagement, it remains more of a buzzword than an actual business practice. Associate surveys aren’t cutting it. Employers are still severely out of touch with the needs and feelings of their employees. Our data reveals a vast chasm between employer and employee perceptions around almost every key engagement metric: pay, transparency, and overall job satisfaction. Employers Employees Believe that employees at their company are paid fairly. 73% 36% Believe that employees are valued at work 78% 45% Report that their company is transparent about pay 40% 21% On average, nearly 73% of employers believe their employees are paid fairly. Top performing companies are even more confident, coming in at 83%. However, 64% of employees disagree, stating they are paid “below average” compared to their colleagues in similar roles. Similarly, nearly 40% of employers report that they have transparent, open communication around salary, but only Our data reveals a vast chasm between employer and employee perceptions around almost every key engagement metric. “ ”
  • 18. www.payscale.com 18 21% of employees “agree” or “strongly agree.” Even so, few employers plan to change their non-transparent ways: less than one in five non-transparent companies are planning to embrace this pay practice in 2016. However, there were areas where employees and employers were aligned. 35% of employers cited animosity with a direct supervisor or manager as one of the top three reasons employees left in 2015. This lines right up with employee sentiment, as 67% of respondents report that having a great relationship with their direct manager is critical to their job satisfaction. Bottom line: everyone agrees that managers can make or break an employee’s experience. Businesses would do well to choose their leaders carefully. There was also a similar alignment on the importance of learning and development. 45% of employees “agree” or “strongly agree” that their employer provides them with enough opportunity for learning and development. Employers confirm this, as 58% of companies plan on offering learning and development opportunities in 2016 to help recruit and retain high-value employees. Moral of the story? Both employers and employees are wising up to the fact that learning and development can be one of the most valuable perks. This makes sense—continuing training and education can improve not just an employee’s current salary, but future compensation down the line. Luckily, employers are prepared to accommodate this trend. 35% of employers cited animosity with a direct supervisor or manager as one of the top three reasons employees left in 2015.
  • 19. www.payscale.com 19 Comptopians Tell All: What Top Performers Do Differently Top performing companies are more likely to pay fairly, practice pay transparency, and embrace variable pay—49% of top performers report having a formal compensation strategy versus only 38% of average companies. Top performers also report valuing their employees more highly than average companies and are more likely to invest in top talent—61% are willing to pay above the 50th percentile for competitive jobs. Top performers by industry Here are the industries with the most top performing companies: Manufacturing Technology Nonprofit 16% 11% 11% While some companies still tremble at the thought of practices like paytransparency,with the risk comes reward. The data shows a distinct correlation between modern pay practices and business success, as top performerswere defined as companies thatwere numberone in theirindustry and exceeded theirrevenue goals in 2015. 61% of top performers are willing to pay above the 50th percentile for competitive jobs.
  • 20. www.payscale.com 20 Average companies Top performing companies Embrace transparent communication around pay 40% 47% Give bonuses 74% 81% Give team bonuses 26% 30% Agree “our people are our best asset” 78% 86% Are increasing their budget for bonuses in 2016 41% 50% Provide a total rewards statement for compensation 39% 47% Transparency: More Talk, Less Treasure As mentioned above, 40% of employers reported having transparent, open communication around compensation. This number in itself is striking. What’s even more intriguing is how the number increases when you look at top performers, 47% of whom embrace pay transparency. The data shows a distinct correlation between modern pay practices and business success.
  • 21. www.payscale.com 21 Not every company is equipped to embrace transparency. While 35% of companies report offering training to managers to teach them how to talk to employees about compensation, only 17% of companies report being very confident in managers’ abilities to have tough conversations about compensation. Only 11% of respondents from the Manufacturing Industry and 10% of respondents from medium-sized companies are confident in their managers’ ability to talk pay. When it comes to transparency, employers would do well to arm their troops. Not only does the CBPR data show that top performers practice transparency, a separate PayScale survey of 71,000 employees found that 82% of employees would feel satisfied with below-market pay, as long as their employer was transparent about the reasons. Moral of the story? Don’t assume more money is the answer. Try additional communication before resorting to additional compensation. Train your people to have those conversations. 82% of employees would feel satisfied with below-market pay, as long as their employer was transparent about the reasons. View the infographic!
  • 22. www.payscale.com 22 Variable Pay: A More Diverse Budget Bouquet Contrary to popular belief, it’s actually not all about that base. Merit still matters most, with 50% of employers giving raises based on performance. However, bonuses are also a strong focus for compensation plans this year. In fact, the proportion of companies who report giving bonuses has steadily increased over the last four years, up to 74%, compared to 69% of respondents in 2013. Top performing companies are more likely to give bonuses to their employees, as 81% of top performers gave bonuses in 2015, compared to 74% average companies. Top performers are also increasing their average bonus size at a greater rate. Nearly half of all top performing companies who give bonuses are increasing the size of their bonus budget in the coming year. There is also more creativity and variety to the type of bonuses administered by top performers. For example, top performing companies are more likely to provide “team incentive bonuses” to their employees. 30% of top performing companies report providing team incentive bonuses, compared to 26% overall. 81% of top performing companies give bonuses, as opposed to 74% overall. Top performing companies also offer more of a compensation mix than the average company.
  • 23. www.payscale.com 23 Top performing companies also offer more of a compensation mix than average companies. They offer everything from merit-based pay plans, to non- discretionary incentive-based pay plans, to discretionary bonus plans, stock options, learning and developmental opportunities, as well as other perks like gym memberships or catered lunches. Data Debate: Quality Eclipses Methodology More than half of companies reported being open to both employer-submitted data and employee-submitted data, as long as the data is accurate and fresh. This compares to 20% of companies that reported preferring employer- submitted data because it’s what they’ve been using for years. Lastly, only 14% of companies felt that employee- submitted data is unreliable because “employees can’t be trusted to tell the truth about their salaries.” Speaking of Data… 58% of all companies reported using online salary data to set salaries, but less than 40% of those respondents reported paying for the data. However, nearly 65% of top performing companies reported using online salary data to set salaries and nearly 45% of top performing companies who use online salary data pay for that data, helping to ensure fresh, reliable data. More than half of companies report having no preference between employer- submitted data and employee- submitted data.
  • 24. www.payscale.com 24 Is it time to jump ship on traditional salary surveys? Nearly 41% of all respondents report using traditional salary survey data to set salaries; however only 27% of those using traditional surveys, associate data, or a consultant to set salaries report being ‘very satisfied’ with their current salary market data. Additionally, nearly 30% of respondents report that they do not participate in any traditional compensation surveys. Of those that do participate in traditional compensation surveys, nearly 20% of respondents are spending three days to two weeks filling out compensation surveys. Millennial Island, Still Shipwrecked As the 2015 CBPR also found, millennials are yet to steer the ship. More than 50% of average companies are not changing compensation strategies to accommodate millennials. However, these numbers are different for top performing companies, as nearly 35% stated they are changing compensation strategies. For those changing strategies, many cited changes in paid time off policies, wellness benefits, and increases in philanthropic and diversity initiatives. More than 50% of average companies will not change compensation strategies to accommodate millennials. Only 27% of those using traditional surveys, associate data, or a consultant to set salaries report being ‘very satisfied’ with their current salary market data.
  • 25. www.payscale.com 25 Don’t Miss the Boat: Last Year is so Last Year Our final statistic addresses the rising trend of real-time communication. When asked what the biggest trend that would shake up the HR world next year would be, 44% of all companies cited eliminating traditional performance reviews in favor of real-time feedback. Could a change in tide be headed HR’s way? Visit the interactive experience to get a high-level view of how companies view their performance. Want more? Don’t forget to register for PayScale’s 2016 Compensation Best Practices Report Highlights Webinar. CLICK HERE!
  • 26. www.payscale.com 26 About PayScale Cloud software, crowdsourced data and unique algorithms power the world’s largest real-time database of rich salary profiles giving PayScale the unique ability to provide job seekers and employers alike immediate visibility into the right pay for any position. PayScale’s cloud compensation software is used by more than 3,500 customers including Bloomberg BNA, Cummins, Intercom, Clemson University and Signature HealthCARE. Get a Demo Further Resources Employee Engagement Infographic Transparency Best Practices Webinar Turnover: The Good, the Bad, and the Ugly