23.10.2024

Pay still drives employee attraction and retention, but current pay programmes fall short

About half of global employers report they are effectively delivering on each of the six individual core objectives of pay programmes, despite pay being the most commonly cited reason employees join and stay with an employer. This is according to the 2024 Pay Effectiveness and Design Survey by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.

The survey found that of the six core objectives related to pay programme effectiveness — driving employee attraction, driving employee retention, promoting fair compensation among employees, promoting competitive compensation compared to employees at other organisations, aligning with business strategy, and rewarding employees for current-year performance — about half of employers report that they are effective at two of these objectives and fewer than half are effective at each of the other four.

Yet, related research shows that 48% of employees cite pay as one of the main drivers for both attraction and retention – the most commonly cited factor for both- , and more than half of employees (56%) would consider another job offer for better pay.

This disconnect is likely in part due to changes that have affected the nature of work over the past several years. Labour market conditions, such as talent shortages, generational shifts, and new work models, have contributed as well as socio-economic trends like the global pandemic and high inflation.

In addition to these external factors, lack of communication internally impacts overall pay effectiveness. Fewer than one in four say they are effective at communicating how employee pay is determined. Moreover, over half of employers (58%) think that salary compression is an issue and a similar percentage think it will be a problem in the next few years.

“We've always understood the key drivers of pay effectiveness, but what we've learned is that many organisations may not have been able to focus on these factors over the past few years due to complex changes in the labour market. Now is the time to get your compensation strategy in order," said Tom Helier, Senior Director, Work and Rewards at WTW.

"Companies should begin by reviewing how well their compensation philosophy aligns with their business and talent priorities. This is a crucial first step not only to ensure pay programmes deliver value and enhance organisational effectiveness, but also to attract and retain top talent, boost employee productivity, and drive financial performance."

Among companies that have updated their compensation philosophy in the last five years, the most commonly cited reasons for those changes are to enhance attraction or retention (69%) and to enhance the employee experience (51%). Other reasons include ongoing or regularly scheduled review and refresh (47%), building employee understanding (45%), and enhancing pay transparency (44%).

"As companies gear up for their annual pay review, now is the ideal time to reassess pay effectiveness. With evolving business dynamics and employee expectations, it's crucial for organisations to ensure compensation strategies are not just competitive but aligned with broader business goals. This isn't just about keeping up - it’s about staying ahead.” added Helier.

Image by Mohamed Hassan from Pixabay

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