Compensation Programs and Practices research. A report by WorldatWork, October 2012

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A report by WorldatWork,

October 2012

Compensation Programs

and Practices 2012

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©2012 WorldatWork Any laws, regulations or other legal requirements noted in this publication are, to the best of the publisher’s knowledge, accurate and current as of this report’s publishing date. WorldatWork is providing this information with the understanding that WorldatWork is not engaged, directly or by implication, in rendering legal, accounting or other related professional services. You are urged to consult with an attorney, accountant or other qualified professional concerning your own specific situation and any questions that you may have related to that.

No portion of this publication may be reproduced in any form without express written permission from WorldatWork.

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Introduction & Methodology

This report summarizes the results of a June 2012 survey of WorldatWork members to gather information about current trends in compensation programs and practices. This survey focuses on the prevalence of base and variable pay programs as well as common practices used to administer and communicate these programs in today’s workplace. On June 20, 2012, survey invitations were electronically sent to 5,290 WorldatWork members. Members selected for participation were randomly selected members with the word “compensation” in their titles. The survey closed July 13, 2012, with 1,080 responses, a 20% response rate. The data set was cleaned, resulting in a final data set of 1,001 responses.

To provide the most accurate data possible, data was cleaned and analyzed using statistical software. Duplicate records were removed. Data comparisons with any relevant, statistically significant differences are noted within this report.

The frequencies or response distributions listed in the report show the number of times or percentage of times a value appears in a data set. Due to rounding, frequencies of data responses provided in this survey may not total 100%.

WorldatWork conducted similar compensation practices surveys in 2003 (“Survey of Compensation Policies and Practices”) and in 2010 (“Compensation Programs and Practices.”). Where possible, historical comparisons from data gathered in the previous surveys are shown.

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Table of Figures

Demographics

Figure 1: Sector……….………… 4

Figure 2: Organization size……….………… 4

Figure 3: Industry……….. 5

Figure 4: Annual voluntary turnover………...……….. 5

Compensation Philosophy Figure 5: Compensation philosophy ……….……… 8

Figure 6: Employee understanding of the compensation philosophy ……….……… 8

Competitive Positioning Figure 7: Labor market comparison ……….……….………… 9

Figure 8: Relative value of jobs ……….………....………… 9

Variable Pay Programs Figure 9: Variable pay prevalence……….……… 10

Figure 10: Types of variable pay plans ………..………..……… 10

Figure 11: Variable pay labor market comparison…….……… 11

Determination of Base Salary Increases Figure 12: Base salary increase determinations ……… 11

Pay for Performance Figure 13: Employee rating systems ……….……….. 12

Figure 14: Typical variation in salary increases 2012 ………..……….……… 13

Figure 15: Increases based on performance, method for determining the actual increase ………. 13

Figure 16: Number of performance ratings levels/categories….……….……… 14

Figure 17: Employee distribution across performance categories………..……….……… 14

FLSA Classification (U.S.) Figure 18: FLSA requirements exemptions……….……… 15

Figure 19: Portion of U.S. positions/jobs that maintain FLSA exemption status ….………….……… 15

Figure 19a: Nonexempt positions/groupings by organization size………..……… 16

Figure 19b: Exempt positions/groupings by organization size ……… 16

Salary Structure Design and Administration Figure 20: Assessment of the market pricing of jobs……….……… 17

Figure 21: Adjustment of base salary structures for employees………..……… 17

Figure 22: Multiple salary structures………..……… 18

Figure 22a: Formal salary structures………..……… 18

Figure 23: Number of separate structures ………...……… 19

Figure 24: Separate structures defined/identified……… 19

Figure 25: Salary grades and/or broad bands………..…………...……… 20

Figure 25a: Typical range spread for hourly positions.………..…………...……… 20

Figure 25b: Typical range spread for salaried positions.………..………….……… 21

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Types of Increases

Figure 26: Types of salary increases and/or adjustments awarded……….……… 22

Pay Communication Figure 27: Individual salary information shared with employees……….………… 22

Figure 28: Employee communications about the pay program (last 12 months)………. ……… 23

Figure 29: Frequency of employee communications about individual pay……….……… 23

Figure 30: Approach to communicating individual pay increases ……… 24

Evaluation of Salary Policies and Practices Figure 31: Salary program effectiveness ………..……….………. 24

Global Analysis Figure 32: Responsibility and global regions ………..……….…….………. 25

Figure 33: Compensation philosophy and variations by global regions ………..……….. 25

Figure 34: Administration of variable pay programs and global regions ………..……….. 26

Figure 35: Types of variable pay programs and global regions ………..…………..……….. 26

Figure 36: Performance-management programs consistency by global regions ……….. 27

Additional Analysis Figures Comparisons by Type of Compensation Philosophy Figure 37: By year……….……… 28

Figure 38: By sector……….……… 29

Figure 39: By understanding of compensation philosophy………...…….……… 29

Comparisons by Level of Compensation Philosophy Understanding Figure 40: By year……….……… 30

Figure 41: By sector……….……… 31

Figure 42: By type of pay information shared with employees……….……… 31

Figure 43: By pay communication approaches……….……… 32

Figure 44: By annual turnover……… 32

Comparisons by Annual Turnover Figure 45: By base salary practice……….……….…..……… 33

Figure 46: By total cash target (or goal) ……….………...……..……… 33

Figure 47: By variable pay practice or payout……….………..…………..……… 34

Figure 48: By variation in salary increase for 2012……….……….……..……… 34

Figure 49: By type of pay information shared with employees………..………..………… 35

Figure 50:By pay communication approaches……….………..……… 35

Comparisons by Sector Figure 51: By determination of base salary increases………..………...……..……… 36

Figure 52: By formal employee performance rating system prevalence………. 37

Figure 53: By variation in salary increases for 2012……….………...……..……… 37

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Demographics

Figure 1: “Your organization is:” (n=941)

0% 10% 20% 30% 40% 50% Public sector

(local, state, federal … Non-profit/Not-for-profit (education/academic … Private sector - privately

held

Private sector - publicly traded

15% 16%

23%

45%

Figure 2: “Please choose the total number of full-time employees (FTEs) your organization employs worldwide:” (n=941)

Option Percent

Less than 100 employees 0%

100 to 499 3% 500 to 999 6% 1,000 to 2,499 13% 2,500 to 4,999 18% 5,000 to 9,999 21% 10,000 to 19,999 15% 20,000 to 39,999 10% 40,000 to 99,999 10% 100,000 or more employees 5%

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Figure 3: “Please choose one category that best describes the industry in which your organization operates:” (n=940)1

Option Percent

Finance and Insurance _13%

All Other Manufacturing _12%

Health Care and Social Assistance _10%

Utilities, Oil and Gas _8%

Consulting, Professional, Scientific and Technical Services _6%

Retail Trade _6%

Information (includes Publishing, IT Technologies, etc.) _4%

Educational Services _4%

Computer and Electronic Manufacturing _4%

Public Administration _3%

Pharmaceuticals _2%

Transportation _2%

Other Services (except Public Administration) _2%

Other 17%

Figure 4: “What is the approximate annual voluntary turnover for employees?” (n=883)

Option Percent 0-5% 23% 6-10% 40% 11-15% 19% 16-20% 8% 21-26% 4% 27-40% 3% 41% or more 3%

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Executive Summary

Compensation Philosophy

Despite the fact that the percentage of organizations having a written compensation philosophy now exceeds two-thirds, the percentage of organizations in which most or all employees understand the philosophy is only 28%, suggesting an ongoing need to employ more effective communications techniques (Figure 6). For those multinational organizations, more than three-quarters (76%) have a common philosophy worldwide (Figure 33). Employers with a written philosophy are statistically more likely to have their employees understand it (Figure 39).

Competitive Positioning

Most organizations target base pay (86%) and total cash compensation (71%) at the median of the market. However in practice, fewer organizations achieve this objective for either base pay (67%) and total cash compensation (54%). Although only 6% target base pay below median, 19% actually pay below median. With respect to total cash compensation, 5% target pay below median, but a full 20% actually pay below median (Figure 7). It should be noted that a higher percentage of organizations pay above median than is targeted as well, although the differences between practice and targets are much less pronounced.

Job Evaluation Methods

Market pricing far exceeds all other job evaluation methods in prevalence. 88% of organizations use market pricing to some degree; 50% use market pricing exclusively. The point-factor approach, once the most common method a few decades ago, is far behind at 20% (Figure 8).

Variable Pay Prevalence and Practices

Variable pay continues to be used at most organizations, with 84% of participants indicating they use this pay practice (Figure 9). More than three-fourths of organizations award bonuses and two-thirds award recognition payments such as spot awards. With regard to incentive plans, a majority of

organizations use individual or performance-sharing plans. Profit-sharing plans are used by just 19% of respondents (Figure 10). 47% of organizations with multinational operations say all employees

generally participate in the same programs. Some flexibility is provided to countries or regions either to make limited adaptations to corporate programs or to install local programs of nominal cost (Figure 35).

Pay for Performance

Virtually all organizations (99%) assess employee performance. Although the most common criterion for determining pay increases continues to be based on individual performance against job standards, its use has dropped since 2010. The use of individual performance against management objectives or personal objectives has gained substantially (58%). This trend suggests that performance goals and objectives are being set in a more deliberate and employee-specific manner as opposed to using generic performance objectives that may be found on boiler-plate position descriptions.

Position in salary range and the market value of the positions also are factors considered by 56% and 50% of organizations, respectively (Figure 12). Most organizations strive to differentiate increases based on performance, with 70% of respondents indicating that increases for high performers are at least 50% higher than average performers, and a full quarter saying increases for top contributors are at least twice that of average contributors (Figure 14). In terms of the guidance that organizations provide their managers on awarding increases to employees, 31% mandate a particular percentage or range of percentages that managers must award. The remaining organizations may provide guidance but allow managers latitude to determine increases for employees (Figure 15). 85% of multinational respondents indicate that their performance management program is applied worldwide (Figure 34).

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Salary Structure Design and Administration

A full 85% of organizations have a formal salary structure(s) (Figure 22a). 59% of organizations review their salary structures on an annual basis; an additional 20% review them on an “as needed” basis (Figure 20). The use of traditional salary structures has increased, with 86% of organizations indicating their use. Broadbands, which enjoyed a proliferation in the late 1980s and early 1990s, is now used by only 8% of respondents (Figure 25). 65% of salary structures for hourly positions have range spreads of at least 40%, indicating that somewhat more flexibility in potential pay levels for hourly employees is being offered than in the past (Figure 25a). 80% of structures for salaried positions have range spreads between 45% and 75% (Figure 25b).

Pay Communications

More than one-third (34%) of organizations indicate they share “minimal” pay-related information to employees. Moreover, the same percentage indicates actively sharing the organization’s compensation philosophy with employees. More encouraging is that 46% of participants indicated that they do share specific design elements of company pay programs (e.g., link to performance, who is considered to be part of market data) (Figure 27). Also encouraging is the survey result that nearly 8 in 10 respondents (79%) indicated that supervisors have individual discussions with employees regarding pay programs (Figure 28). In terms of communications methods, brief written or verbal communications are the most prevalent, although these methods are statistically less effective methods than using more detailed pay communications (Figure 30). Not surprisingly, employees are much less likely to understand the

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Results and Analysis

Compensation Philosophy

See Figures 36-43 for additional comparisons of findings by compensation philosophy. Figure 5: “Does your company have a compensation philosophy for paying employees?”

Option 2012

(n=996)

2010

(n=1,381) 2003 We have a written compensation philosophy 67%2 61% 62% We have an unwritten compensation philosophy 26% 29% 29%

We do not have a compensation philosophy 7% 9% 7%

Other 1% 1% 2%

Figure 6: “To what extent do employees understand the company’s compensation philosophy?”

Participants who answered, “We do not have a compensation philosophy” in Figure 4 did not receive this question.

Option 2012

(n=921)

2010

(n=1,237) 2003 Virtually no employees understand the compensation

philosophy 6% 7% 6%

Most do not understand the compensation philosophy 38% 35% 32% About half of employees understand the compensation

philosophy 28% 29% 28%

Most employees understand the compensation philosophy 26% 26% 31% Virtually all employees understand the compensation

philosophy 2% 3% 4%

2_{A statistically significantly higher number of organizations reported having written compensation philosophies in 2012 (67%)}

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Competitive Positioning

Figure 7: “Compared to the relevant labor market, what is your organization’s:” The scale for the 2012 figure differed from the scale used in 2010. Historical comparisons are not possible. 25th percentile or below Above 25th but below 50th percentile 50th percentile, or median Above 50th but below 75th percentile 75th percentile or above

Base salary target

(or goal) (n=958) 1% 5% 86% 8% 2%

Base salary practice

(n=951) 1% 18% 67% 13% 1%

Total cash target or

goal (n=843) 1% 4% 71% 20% 4%

Current total cash

practice (n=844) 1% 19% 54% 22% 4%

Figure 8: “How does your organization determine the relative value of jobs (job evaluation method)?” (Please select all that apply.) (n=989)

This question is a new addition in 2012.Historical comparisons are not possible.

Option 2012 Market pricing 88% Ranking 15% Classification 17% Point factor 20% Other method 7%

No method in place (exclusive option) 2%

Additional Findings:

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Variable Pay Programs

Figure 9: Does your organization currently use variable pay (not including sales commission plans)?” 0% 20% 40% 60% 80% 100% 2012 2010 Yes 84% Yes 80% No 16% No 20%

Figure 10: “Which of the following types of variable pay plans does your organization use for some or all employees?” (Please select all that apply.)3

Participants who answered “No” in Figure 7 did not receive this question.

0% 20% 40% 60% 80%

Profit sharing Performance sharing (based on other financial or

nonfinancial goals) Bonuses (e.g. sign-on, retention)

Recognition (e.g. spot award) Individual incentives (other than sales incentives)

19% 58% 76% 66% 59% 19% 57% 59% 60% 67% 2010 (n=1066) 2012 (n=820)

3A statistically significantly higher number of participants in 2012 reported using recognition (66%) and bonus (76%) variable pay plans compared with 2010, while a statistically significantly higher number of participants in 2010 reported using individual incentives (67%).

(n=989) (n=1,347)

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Figure 11: “Compared to the relevant labor market, what is your organization’s:” 0% 10% 20% 30% 40% 50% 60% 70% 80% 25th percentile

or below Above 25th but _{below 50th} percentile

50th percentile,

or median Above 50th but _{below 75th} percentile 75th percentile or above 2% 8% 70% 16% 4% 3% 20% 53% 21% 3%

Variable pay target (or goal) (n=719) Variable pay practice or payout (n=720)

Determination of Base Salary Increases

Figure 12: “How are base salary increases typically determined for employees?” (Please select all that apply.)

Option 2012

(n=979)

2010 (n=1,337)

Individual performance against job standards _66% _73%4

Individual performance against MBOs or similar personal objectives _58%5

44%

Position in range 56% 54%

Market value of the position _50% _55%

Skill or competency acquisition _20% _25%

General increase – everyone receives the same increase _12% _11%

Years of service _9% _13%

Education/certifications _9% _10%

Other _4% _4%

4

A statistically significantly higher number of participants cited using individual performance against job standards for base salary increases in 2010 (73%) compared with the same method in 2012 (66%).

5

A statistically significantly higher number of participants cited using individual performance against MBOs or similar personal objectives in 2012 (58%) compared with the same method in 2010 (44%).

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Additional Findings:

• 2% of participants selected only “General increase – everyone receives the same increase” and nothing else out of all answers listed. This is the same percentage as 2010.

• 92% of participants selected individual performance against job standards and/or MBO. This is an increase from 90% in 2010.

• 84% of participants selected individual performance against job standards and/or or MBO without selecting the general increase option. This is a decrease from 89% in 2010.

Pay for Performance

Figure 13: “Do you have a formal employee performance rating system, resulting in a performance metric or score?”6

0% 20% 40% 60% 80%

No, we don’t assess performance We assess performance, but do not

have a performance score We have a rating system with a performance score that is not tied

to salary increases We have a rating system with a performance score that is tied to

salary increases 1% 11% 17% 71% 2% 14% 20% 65% 2010 (n=1335) 2012 (n=979) 6

A statistically significantly higher percentage of participants cited having a rating system with a performance score that is tied to salary increases in 2012 (71%) compared with 2010 (65%).

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Figure 14: “If salary increases are based on performance, what is the typical variation in salary increases for 2012?”

Only participants who answered, “We have a rating system with a performance score that is tied to salary increases” in Figure 11 received this question.

Option 2012

(n=679)

2010

(n=836) 2003 Base salary increase is based on something other than individual

performance 2% 1% 1%

Everyone receives approximately the same increase 4% 4% 5%

Small variation (increase for top performers is 1.25 times the

average) 24% 24% 20%

Moderate variation (increase for top performers is 1.5 times the

average) 45% 43% 43%

Considerable variation (increase for top performers is 2 times the

average) 23% 25% 28%

Extreme variation (increase for top performers is at least 3 times the

average) 2% 2% 4%

Figure 15: “If your organization allocates annual increases based on performance, indicate the method for determining the actual increase:”

Only participants who answered “We have a rating system with a performance score that is tied to salary increases” in Figure 11 received this question. This question is a new addition in 2012.Historical comparisons are not possible.

Option 2012

(n=677) A merit matrix (position in range and performance rating) is published that

managers MUST follow in which a specific percentage increase is published for each box of the matrix

12% A merit matrix is published that managers MUST follow in which a specific

RANGE of increases is published for each box of the matrix 11% A merit matrix is published that managers use as a GUIDE, but they have

discretion to deviate if deemed appropriate 51%

A specific guide providing one increase percentage or a range of increase percentages for each level of performance (position in salary range is not considered) is published that MUST be followed

8% A specific guide providing one increase percentage or a range of increase

percentages for each level of performance (position in salary range is not considered) is published as a GUIDE only

10%

Other type of guidance is provided _5%

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Figure 16: “How many performance ratings levels/categories are used when assessing individual performance? (Please do not including levels such as "Too New to Rate," "New Hire," etc.)” (n=1,126)

Only participants who answered “We have a rating system with a performance score that is tied to salary increases” or “We have a rating system with a performance score that is not tied to salary increases” in Figure 11 received this question.

0% 10% 20% 30% 40% 50% 60%

None Two Three Four Five Six or more 0% _0% 12% 27% 54% 7% 0% _1% 12% 23% 57% 7% 2010 (n=1126) 2012 (n=844)

Figure 17: “How were employees distributed across these performance categories for 2011 or last performance period?” (n=1,112)

Only participants who answered “We have a rating system with a performance score that is tied to salary increases” or “We have a rating system with a performance score that is not tied to salary increases” in Figure 11 received this question.

0% 20% 40% 60%

Do not track this information Employees are spread approximately evenly across performance ratings

Spread is skewed toward lower performance ratings Spread is skewed toward higher

performance ratings Most people fell into the middle with a

bell-shaped distribution around the middle

5% 0% 1% 41% 54% 5% 1% 1% 39% 54% 2010 (n=1112) 2012 (n=839)

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FLSA Classification (U.S.)

Figure 18: “What portion of your organization’s U.S. positions/jobs is exempt from Fair Labor Standards Act (FLSA) requirements?”

Only participants who answered “We have a rating system with a performance score that is tied to salary increases” or “We have a rating system with a performance score that is not tied to salary increases” in Figure 11 received this question. Answer options in the survey questionnaire were listed in 10% increments. 0% 10% 20% 30% 40% 0% (None) 10% to 30% 40% to 60% 70% to 90% 100% (All) 4% 32% 36% 26% 1% 3% 32% 38% 27% 1% 2010 (n=998) 2012 (n=709)

Figure 19: “For what portion of your organization’s U.S. positions/jobs do you maintain FLSA exemption status documentation?”

Only participants who answered “We have a rating system with a performance score that is tied to salary increases” or “We have a rating system with a performance score that is not tied to salary increases” in Figure 11 received this question. Answer options in the survey questionnaire were listed in 10% increments and a definition for “documentation” was not provided in the questionnaire.

0% 10% 20% 30% 0% (None) 10% to 30% 40% to 60% 70% to 90% 100% (All) 25% 21% 11% 16% 28% 29% 16% 10% 14% 30% Exempt positions (n=612) Nonexempt positions (n=611)

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Figure 19a: Portion of nonexempt positions/jobs for which FLSA exemption status testing documentation is maintained, by organization size.

Organization Size 0% 10% to 30% 40% to 60% 70% to 90% 100% Less than 100 (n=0) 0% 0% 0% 0% 0% 101 to 999 (n=49) 39% 18% 14% 8% 20% 1000 to 4,999 (n=205) 32% 16% 11% 13% 27% 5,000 to 19,999 (n=211) 31% 13% 9% 17% 31% 20,000 and above (n=138) 20% 20% 11% 15% 34%

Figure 19b: Portion of exempt positions/jobs for which FLSA exemption status testing documentation is maintained, by organization size.

Organization Size 0% 10% to 30% 40% to 60% 70% to 90% 100% Less than 100 (n=1) 100% 0% 0% 0% 0% 101 to 999 (n=51) 28% 28% 16% 14% 16% 1000 to 4,999 (n=197) 26% 20% 13% 14% 27% 5,000 to 19,999 (n=220) 27% 19% 9% 18% 28% 20,000 and above (n=135) 19% 22% 11% 17% 32%

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Salary Structure Design and Administration

Figure 20: “How often do you assess the market pricing of jobs (i.e., pricing benchmarks or all jobs with salary survey data)?”

0% 20% 40% 60%

As needed based on market conditions

Never Less than once every two years Once every two years Once a year Multiple times per year

20% 0% 4% 11% 59% 6% 19% 1% 5% 13% 55% 7% 2010 (n=1315) 2012 (n=956)

Figure 21: “How often do you typically adjust base salary structures for employees?”

0% 20% 40% 60%

Multiple times per year Once a year Once every two years Less than once every two years

Not consistently adjusted OR as needed based on market

conditions 0% 55% 9% 4% 31% 0% 58% 9% 3% 30% 2010 (n=1280) 2012 (n=929)

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Figure 22: “Does your organization have more than one salary structure?” 0% 20% 40% 60% 80% 100%

2012

2010

Yes 72% Yes 59% No 28% No 41% (n=1285) (n=940)

Figure 22a: “Does your organization use a formal salary structure(s)?” This question is a new addition in 2012.Historical comparisons are not possible.

Yes

85%

No

15%

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Figure 23: “How many separate structures are in place?”

Only participants who answered “Yes” in Figure 22a received this question.

0% 20% 40% 60% 80% 100%

2012

2010

2 18% 2 25% 3 18% 3 21% 4 13% 4 12% 5 or more 51% 5 or more 42% (n=751) (n=626)

Figure 24: “How are the separate structures defined/identified?” (Please select all that apply.)

Only participants who answered “Yes” in Figure 22a received this question.

Option 2012

(n=627)

2010 (n=836)

By geographic region 52% 45%

By FLSA exemption status or other regulatory classification 33% 35%

By business unit/subsidiary 31% 25%

By job category/roll/type/function 23% 32%7

By bargaining unit/union affiliation 5% 7%

Other 4% 4%

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A statistically significantly higher number of participants in 2010 defined separate structures by job category, roll, type or function (32%) compared with 2012 (23%).

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Figure 25: “Does your salary structure(s) consist of salary grades or broadbands?” Only participants who answered “Yes” in Figure 22a received this question.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Salary grades Broadbanding approach Other 73% 14% _13% 86% 8% _6% 2010 (n=1284) 2012 (n=628)

Figure 25a: “For hourly positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)?” (n=609)

Only participants who answered “Salary grades” in Figure 25 received this question. This question was asked in 2012 only. There is no history on this specific data.

0% 10% 20% 30% 40% 50% Less than 10% 10% to less than 20% 20% to less than 30% 30% to less than 40% 40% to less than 50% 50% or more 3% 8% 12% _11% 24% 41%

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Figure 25b: “For salaried (except executive) positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)?” (n=645)

0% 10% 20% 30% Less than 25% 25% to less than 35% 35% to less than 45% 45% to less than 55% 55% to less than 65% 65% to less than 75% 75% or more 4% 7% 9% 30% 25% 15% 11%

Figure 25c: “For executive positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)?” (n=561)

0% 10% 20% Less than 35% 35% to less than 45% 45% to less than 55% 55% to less than 65% 65% to less than 75% 75% to less than 85% 85% or more 7% 7% 19% 18% 19% 10% 19%

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Types of Increases

Figure 26: “What types of salary increases and/or adjustments does your organization award to some or all employees?” (Please select all that apply.)

Option 2012

(n=946)

2010 (n=1,306) Promotional increases (result of higher/greater level of responsibility) 97% 94%

Merit increases 94% 92%

Market adjustments 77% 76%

Internal equity adjustments 69% 64%

Pay differentials (usually related to atypical schedule, hazardous or

un-secure work environment, special skill set or responsibilities, etc.) 49% 42%

Temporary special assignment pay 39% 36%

General across-the-board increases not considered COLA or market

adjustments 13% 12%

Cost-of-living adjustments (COLAs) 12% 11%

Other 4% 4%

Pay Communication

Figure 27: “How much information about the pay program is shared with employees about their individual salaries?” (Please select all that apply.)

Option 2012

(n=940)

2010 (n=1,300) Information regarding the design of the pay program

(e.g., strategy, compensation markets, link to performance, etc.) 46% 49%

Base salary range for the employee’s pay grade 44% 43%

The organization's compensation philosophy 34% 52%

Minimal pay-related information is shared 34% 32%

Base salary ranges for all pay grades or jobs 18% 19%

Actual pay levels for all employees 2% 1%

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Figure 28: “In the past 12 months, how did employees receive communications about the pay program?” (Please select all that apply.)

Option 2012

(n=940)

2010 (n=1,299)

Individual discussions with their supervisor 79%8 _73%

Information is posted on a company website 41% _42%

Memos, emails 37% _41%

Individual discussions with human resources/compensation department 29% _30%

Employee meetings 23% _27%

Employee handbook or orientation manual 20% _21%

No pay communications 7% _7%

Other 7% _6%

Figure 29: “How often did employees receive communications about their individual pay in the past 12 months?”

Participants who answered “No pay communications” in Figure 28 did not receive this question.

0% 10% 20% 30% 40% 50% 60% 70% 80% Never At least once

Twice 3 times 4 times 5 times or more 6% 76% 12% 3% _1% _2% 5% 79% 12% 3% 0% 2% 2010 n=1297 2012 (n=872) 8

A statistically significantly higher number of participants in 2012 cited using individual discussions with their supervisor to communicate pay programs to employees (79%) compared with 2010 (73%).

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Figure 30: “The approach to communicating individual pay increases is:” (Please select all that apply.)

0% 20% 40% 60%

We never communicate pay information

Detailed written communication Detailed verbal communication Brief verbal communication Brief written communication

1% 25% 25% 51% 54% 2% 22% 24% 49% 54% 2010 (n=871) 2012 (n=871)

Evaluation of Salary Policies and Practices

Figure 31: “How does management determine if the salary program is effective?” (Please select all that apply.)

Option 2012

(n=922)

2010 (n=1,258)

Employee turnover or retention 63% 59%

Employee satisfaction survey metrics 50% 46%

Business/operating results 29% 32%

Senior leadership tells us that it is working 21% 21%

Management does not evaluate salary program effectiveness 20% 22%

Employees tell us that it is working 19% 18%

Employee productivity metrics 16% 17%

Labor cost is controlled/lowered 15% 15%

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Global Analysis

The following questions were included in the 2012 fielding of this survey only. No historical data is available.

Figure 32: “For which regions of the world do you have responsibility?” (Check all that apply.) (n=1001) 0% 20% 40% 60% 80% 100% Africa Middle East Eastern Europe Latin America Western Europe Asia-Pacific United States/Canada 10% 12% 14% 19% 21% 22% 99%

Figure 33: “If you have a compensation philosophy, is it universal companywide or does it vary by country?” (n=223)

Only survey participants selecting more than one country in Figure 32 received this question.

76% Varies by country 24% Universal companywide

(28)

Figure 34: “If you have employees in multiple countries, how are your variable pay programs designed and administered?” (n=235)

Option 2012

Variable pay programs are designed primarily at the corporate level, and all employees generally participate in the same programs with flexibility for local countries to make limited adaptations or implement unique programs of nominal cost

47%

Variable pay programs are designed exclusively at the corporate level, and all

employees worldwide participate in the same programs 33%

Variable pay programs are designed with significant input from local HR and/or line management. One or a few core variable pay programs exist

companywide, however different countries have significant latitude to

implement additional local programs based on local practice and competitive factors

17%

Variable pay programs are designed and administered primarily at the local

level to ensure they are meeting the unique needs of local employees 3%

Figure 35: “Which of the following types of variable pay plans does your organization use for some or all employees based on the regions you are responsible for?” (Please select all that apply.)

Profit sharing Performance sharing (based on other financial or nonfinancial goals) Individual incentives (other than sales incentives) Bonuses (e.g., sign-on, retention) Recognition (e.g., spot award) United States/Canada 24% 57% 61% 76% 75% Africa 14% 54% 55% 67% 71% Asia-Pacific 13% 51% 59% 65% 66% Eastern Europe 14% 60% 54% 64% 67% Western Europe 15% 54% 58% 65% 69% Middle East 16% 51% 58% 71% 70% Latin America 20% 53% 58% 61% 62%

(29)

Figure 36: “Is your performance management program applied consistently to all countries?”

Yes 85%

No 15%

(30)

Additional Analysis

Comparisons by Type of Compensation Philosophy

This section provides a detailed analysis of an organization’s compensation philosophy status: • Written compensation philosophy

• Unwritten compensation philosophy • None/other compensation philosophy

This summary is intended to provide an overview of how organizations with a written compensation philosophy may differ from organizations with an unwritten compensation philosophy9. Figure 37: By year10 0% 10% 20% 30% 40% 50% 60% 70% Written compensation philosophy Unwritten compensation philosophy None/other compensation philosophy 61% 29% 10% 67% 26% 8% 2010 n=1381 2012 n=996 Legend (n=996): 9

Selected statistically significant differences are noted.

10

In 2012 a statistically significantly higher percentage of organizations have a written compensation philosophy (67%) compared with 2010 (61%).

(31)

Written compensation philosophy 67% Unwritten compensation philosophy 26% None/other compensation philosophy 8% Figure 38: By sector

Written Unwritten None/other

Public sector (n=143) 62% 28% 10%

Private sector (n=640) 65% 27% 8%

Nonprofit/Not-for-profit (n=153)11 76% 18% 5%

Figure 39: By understanding of compensation philosophy

Written Unwritten None/other

Most or all employees understand the compensation

philosophy12 (n=406) 89% 11% 0% About half of employees understand the compensation

philosophy (n=262) 77% 22% 0%

Virtually all or most employees DO NOT understand the

compensation philosophy (n=253) 57% 41% 1%

Comparisons by Level of Compensation Philosophy Understanding

11_{Nonprofit/not-for-profit sectors are}_{significantly more likely to have a written compensation philosophy (76%) than the public}

sector (62%) and the private sector (65%).

12

Where most, all or half of the employees understand the organizations compensation philosophy, these organizations are statistically significantly more likely to have a written compensation philosophy.

(32)

The following section provides a detailed analysis of employee understanding of organizations’ compensation philosophies:

• Virtually all or most employees do not understand the compensation philosophy • About half of employees understand the compensation philosophy

• Most or all employees understand the compensation philosophy.

This summary is intended to provide an overview of how an organization’s compensation philosophy may vary with an employee’s understanding of the compensation philosophy. Figure 40: By year:

0% 20% 40% 60%

About half of employees understand the compensation philosophy Most or all employees understand the

compensation philosophy Virtually none or most employees DO

NOT understand the compensation philosophy 29% 30% 42% 27% 28% 44% 2010 (n=1237) 2012 (n=921) Legend (n=921):

(33)

Most or all employees understand the compensation philosophy

27%

About half of employees understand the compensation philosophy

28%

Virtually all or most employees DO NOT

understand the compensation philosophy

44%

Figure 41: By sector:

Most/All Half Few/None

Public sector (n=131) _27% _27% _45% Private sector (n=592) _28% _28% _44% Nonprofit/Not-for-profit (n=146) _25% _34% _41%

Figure 42: By type of pay information shared with employees:

Minimal pay-related information is shared (n=273) 13% 18% 68%13

Information regarding the design of the pay program is shared (e.g., strategy, compensation markets, link to performance, etc.) (n=414)

38% 35% 27%

Base salary range for the employee's pay grade is shared

(n=397) 32% 35% 33%

Base salary ranges for all pay grades or jobs are shared

(n=158) 37% 30% 32%

Actual pay levels for all employees are shared14 (n=17) 24% 18% 59%

The organization's compensation philosophy is shared (n=319) 40% 34% 25%

13

Organizations where minimal pay information is shared reported at statistically significantly higher rates that employees within the organization did not understand the compensation philosophy (68%) compared with organizations that share the design of the pay program (27%), the base salary range for the employees pay grade (33%), base salary ranges for all pay grades or jobs (32%), and the organization’s compensation philosophy (25%).

14

(34)

Legend (n=921): Most or all employees

understand the compensation philosophy 27% About half of employees understand the compensation philosophy 28%

Virtually all or most employees DO NOT

understand the compensation philosophy

44%

Figure 43: By pay communication approaches:

We never communicate pay information (n=3) 15 0% 33% 67%

Brief written communication (n=447) 27% 28% 45%16

Detailed written communication (n=208) 38% 31% 31%

Brief verbal communication (n=417) 24% 32% 44%

Detailed verbal communication (n=212) 40%17 29% 31%

Figure 44: By annual turnover:

0%-5% (n=198) 35%18 26% 38%

6%-10% (n=325) 31% 30% 39%

11%-15% (n=159) 21% 26% 54%

16% + (n=136) 16% 32% 52%

15Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity.

16

Organizations that reported communicating with brief written communication (45%) were statistically significantly more likely to report that virtually all or most employees do not understand the organization’s compensation philosophy over organizations providing detailed written communication (31%) and detailed verbal communications (31%).

17

Organizations that reported communicating pay information through detailed verbal communication were statistically significantly more likely to report that most or all employees understand the organization’s compensation philosophy (40%) over organizations providing brief verbal communications (24%).

18

Organizations where most or all employees understand the compensation philosophy were statistically significantly more likely to report a voluntary turnover rate (VTO) between 0%-5% (35%) compared with a VTO of 11%-15% (21%) or 16%+ (16%).

(35)

Comparisons by Annual Turnover

The following section provides a detailed analysis of the approximate annual turnover for employees:

• 0% - 5% • 6%-10% • 11%-15% • 16%+

This summary is intended to provide an overview of how pay practices may differ by annual turnover. Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17%

Figure 45: By base salary practice:

0% - 5% 6% - 10% 11% - 15% 16+%

Less than 25th percentile14 (n=11) 0% 46% 27% 27%

Above 25th but below 50th percentile (n=143) 11% 37% 26% 26%

50th percentile, or median (n=573) 24% 40% 18% 17%

75th percentile or above14 (n=10) 40% 30% 30% 0%

Figure 46: By current total cash practice

0% - 5% 6% - 10% 11% - 15% 16+%

Less than 25th percentile14 (n=7) 0% 57% 14% 29%

(36)

Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17%

Figure 47: By variable pay practice or payout

0% - 5% 6% - 10% 11% - 15% 16+%

Less than 25th percentile (n=20) 15% 50% 5% 30%

75th percentile or above15 (n=20) 30% 55% 10% 5%

Figure 48: By variation in salary increase for 2012:

0% - 5% 6% - 10% 11% - 15% 16+%

Base salary increase is based on something other than

individual performance16 (n=8) 25% 50% 25% 0% Everyone receives approximately the same increase16

(n=29) 28% 31% 21% 21%

Small variation (increase for top performers is 1.25 times the average)

(n=153)

23% 39% 19% 19%

Moderate variation (increase for top performers is 1.5 times the average)

(n=281)

24% 37% 19% 19%

Considerable variation (increase for top performers is 2 times the average)

(n=134)

27% 43% 19% 12%

Extreme variation (increase for top performers is at least 3 times the

average)16 (n=10)

(37)

Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17%

Figure 49: By type of pay information shared with employees:

0% - 5% 6% - 10% 11% - 15% 16+%

Minimal pay related information is shared (n=296) 14% 34% 27% 25%

25% 46%19 17% 13%

Base salary range for the employee’s pay grade is

shared (n=381) 29%

20

44% 15% 12%

Base salary ranges for all pay grades or jobs are

shared (n=161) 36%

21

39% 18% 8%

Actual pay levels for all employees are shared17 (n=18) 33% 22% 28% 17%

The organization's compensation philosophy is shared

(n=296) 25% 45% 16% 14%

Figure 50: By pay communication approaches:

0% - 5% 6% - 10% 11% - 15% 16+%

We never communicate pay information22

20%

(n=5) 40% 20% 20%

Brief written communication (n=445) 23% 40% 21% 16%

Detailed written communication (n=207) 28% 42% 17% 13%

Brief verbal communication (n=415) 21% 40% 21% 18%

Detailed verbal communication (n=204) 28% 37% 17% 17%

19_{Organizations sharing Information regarding the design of the pay program have statistically significantly higher percentages}

of employee voluntary turnover between 0% - 5% (46%) compared with organizations where minimal pay related information is shared (14%).

20Organizations sharing base salary range for the employee’s pay grade have statistically significantly higher percentages of employee voluntary turnover between 0% - 5% (29%) compared with organizations where minimal pay related information is shared (14%).

21Organizations sharing base salary ranges for all pay grades or jobs have statistically significantly higher percentages of employee voluntary turnover between 0% - 5% (36%) compared with organizations where minimal pay related information is shared (14%).

(38)

Comparisons by Sector

The following section provides a detailed analysis of the organization type: • Public sector

• Private sector

• Nonprofit/Not-for-profit

This summary is intended to provide an overview of how an organization’s compensation philosophy may vary by sector.

Legend (n=941): Public sector 15% Private sector 68% Nonprofit/ Not-for-profit 16%

Figure 51: By determination of base salary increases:

Public Private Nonprofit

Individual performance against job standards (n=618) 15% 68%23 17%

Individual performance against MBOs or similar personal

objectives (n=535) 14% 75%

24

11%

Skill or competency acquisition (n=186) 15% 70%25 15% Years of service (n=87) 23% 49% 28%

Position in range (n=524) 13% 74%26 12%

Education/certifications (n=82) 18% 59% 23%

Market value of the position (n=471) 14% 70%27 15%

General increase — everyone receives the same

increase (n=109) 27% 39% 35%

23_{Private-sector organizations are statistically significantly more likely to determine base salary increases from individual}

performance against job standards (68%) compared with years of service (49%) or a general increase (39%).

24_{Private-sector organizations are statistically significantly more likely to determine base salary increases from individual}

performance against MBOs or similar personal objectives (75%) compared with years of service (49%), education or certifications (59%) or a general increase (39%).

25_{Private-sector organizations are statistically significantly more likely to determine base salary increases from skill or}

competency acquisition (70%) compared with years of service (49%) or a general increase (39%).

26Private-sector organizations are statistically significantly more likely to determine base salary increases from position in range (74%) compared with years of service (49%), education or certifications (59%) or a general increase (39%).

27_{Private-sector organizations are statistically significantly more likely to determine base salary increases from the market}

(39)

Legend (n=941): Public sector 15% Private sector 68% Nonprofit/ Not-for-profit 16%

Figure 52: By formal employee performance rating system prevalence:

We have a rating system with a performance score that is

tied to salary increases (n=663) 14% 71%

28

15%

We have a rating system with a performance score that is not

tied to salary increases (n=160) 18% 64% 18% We assess performance, but we do not have a performance

score (n=105) 21% 57% 22% No, we don’t assess performance19 (n=12) 8% 67% 25%

Figure 53: By variation in salary increases for 2012:

Base salary increase is based on something other than

individual performance29 (n=10) 40% 50% 10% Everyone receives approximately the same increase19 (n=30) 37% 43% 20%

Small variation

(increase for top performers is 1.25 times the average)(n=160) 16% 60% 24% Moderate variation

(increase for top performers is 1.5 times the average)(n=301) 10% 76% 14% Considerable variation

(increase for top performers is 2 times the average)(n=145) 11% 82%

30

7%

Extreme variation (increase for top performers is at least 3 times the average)19

(n=11)

9% 73% 18%

28_{Private-sector organizations are statistically significantly more likely to have a rating system with a performance score that is}

tied to salary increases (71%) over organizations that assess performance, but do not have a performance score (57%).

29

Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity.

30_{Private-sector organizations are statistically significantly more likely to have considerable variation in typical salary increases}

(40)

Figure 54: By types of pay information shared with employees:

Minimal pay-related information is shared (n=314) 13% 76% 11%

13% 70% 18%

Base salary range for the employee’s pay grade is shared

(n=409) 15% 65% 20%

Base salary ranges for all pay grades or jobs are shared

(n=171) 30% 42% 28%

Actual pay levels for all employees are shared19 (n=18) 39% 50% 11%