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A new Willis Towers Watson survey has suggested the need to redefine the role of base pay in a changing workplace, and revealed that Australian employers may be considering too many factors in making pay decisions.
WTW’s The 2018 Getting Compensation Survey revealed that a third of Australians believed base-pay programmes are effective at driving individual performance of employees – a view strongly disagreed with by a further 25% of the respondents.
Adam Hall, head of talent and rewards at Willis Towers Watson, said that coming up with the right remuneration design involves five factors.
“Currently merit increases in base pay are not effectively driving performance employers are missing opportunities to differentiate incentive payouts to top performers, and inadequate technology is making complex pay decisions all the more challenging,” Hall said. “Many employers are still falling short when it comes to fair pay, and they are unprepared to meet growing expectations of pay transparency.”
Hall also cited the external influences that companies need to deal with in a rapidly-evolving work ecosystem in order to attract and retain top talents.
“A cautious economy, key talent risks and cost pressure are three critical elements impacting Australian remuneration strategies,” Hall said. “Additionally, the activities of the Hayne royal commission are already being felt in the way companies look at risk, culture, and remuneration.”
The survey also revealed the challenges Australian employers face in making decisions about pay, with 76% of respondents citing limited budgets as a major concern for designing an effective pay-for-performance programme. Future-focused factors, such market competitiveness and the need to possess skills critical to future business success, are also increasingly becoming more important.
Also weighing on the mind of employers is gender-pay equality.
“Organisations should pay all employees fairly, relative to the market and each other, with gender-
pay gaps meriting special attention,” Hall said. “Almost half of Australian companies say it’s a key factor now in making base pay decisions (46%) and 44% say it will grow in importance in the next three years.”
Hall also noted the need to improve the differentiation of their short-term incentives for top performers.
“When actual funding for incentive differs from target funding, incentive payouts are compressed at the top end,” Hall said. “To better allocate finite incentive budgets to high-value talent, organisations should decide which positions should have considerable pay at risk and ensure the incentive payouts deliver appropriate upsides.”
Other key considerations for employers are fair pay and pay transparency.
While the survey found that 75% of companies have formal processes in place to prevent bias or inconsistency in hiring and pay decisions, many employers still fall short when it comes to fair pay, with recent figures by the Workplace Gender Equality Agency showing a 15.3% gender-pay gap based on full-time average weekly earnings.
“The task of increasing transparency becomes more challenging as pay decisions grow in complexity,” Hall said. “Employers need to get their house in order and clearly explain the mix of factors influencing pay decisions, as well as the reasoning behind the results.”
Hall warned companies against the increasing potential for legal and reputational costs due to maintaining even unintentionally discriminatory pay policies and practices, and urged them to conduct a thorough pay equity review to polish their remuneration programmes.
