Pay-for-performance continues to define U.S. employers’ compensation strategies. According to a new study by the WorldatWork nonprofit, 72% of 600 organizations surveyed report that they directly tie pay raises to job performance—and 67% say their best employees earn increases that are 1.5 times higher than those of average workers.
WorldatWork’s “January 2015 Compensation Programs and Practices” study found that 87% of employers use some form of variable pay, not counting sales commissions—up from 84% in 2012 and 80% in 2010.
Yet despite an improving economy, there’s little evidence that employers are prepared to open the pay-raise flood gates. “Currently, the market isn’t compelling employers to accelerate wage growth in any significant way,” said Kerry Chou, the organization’s senior practice leader.
A previous WorldatWork study, released in last August, projected that employers were budgeting for 3.1% raises in 2015.
Most organizations—85%—determine the value of employee jobs based on a market-pricing approach, in which employers annually assess the local job market and then set base salaries at what they perceive is the 50th percentile.
Variable-pay plans typically incorporate sign-on and retention bonuses, which 82% of employers use, spot recognition awards (66%) and performance-based awards based on achievement of business goals (65%).
Only 11% of employers offer cost-of-living pay adjustments.
Chou said HR often struggles to explain how compensation is determined in their organizations. “This year’s data shows us that while nearly all organizations have a compensation philosophy, 45% report that most or all of their employees do not understand it,” she said.
Download a copy of WorldatWork’s “Compensation Programs and Practices” report.