Employers’ Stinginess on Pay Opens Doors for HR Tech

Employers’ unwillingness to share the wealth of a strong economy and the windfall of tax breaks through worker compensation may offer opportunities for HCM technology vendors whose solutions enhance, measure and forecast other aspects of the employee experience.

PenniesDespite the economy’s continued growth and frequent complaints about a talent shortage, businesses continue to hold down pay raises for U.S. employees, according to Mercer. The company’s 2018/2019 U.S. Compensation Planning Survey found that budgeted salary increases remained stagnant, at 2.8 percent during both 2017 and 2018. Respondents predicted a slight uptick during 2019–to 2.9 percent.

Even the savings from December’s tax-cut package didn’t impact most companies’ compensation spend. Mercer’s survey found only 4 percent of organizations redirected some of their anticipated tax savings toward increased salaries. And even those companies weren’t redirecting much: Just more than half planned to raise their salary-increase budget by less than 1 percent of payroll.

Whatever executives are thinking, their actions stand in stark contrast to what their workforce is looking for. In Mercer’s 2018 Global Talent Trends Study, “fair and competitive pay” was the top priority for employees. At the same time, most organizations expressed concerns about attracting and retaining candidates. The difference between what employers worry about and how they act remains a puzzle.

Incentives to Leave

Are companies being short-sighted? Perhaps not. According to ADP, most workers receive their biggest raises during the five years after they’re hired. Once they pass that milestone, their employer ratchets back on annual increases. Overall, those who found new positions were rewarded with a 6 percent raise, on average, though job-hoppers under 25 saw increases of 11 percent. As the labor market remains tight, especially in verticals such as technology and transportation, employers may be offering minimal raises to workers whose performance they deem acceptable but not outstanding, while putting real money into the compensation packages–as well as the technology and talent acquisition expertise–they need to attract and retain high-performers.

Conversations with HR leaders in labor-stressed verticals back this up. For example, an acute shortage of truck drivers, especially those with security clearances and specialized certifications, has transportation companies scrambling to lure the right professionals with more appealing compensation packages. In-house, they’re sweetening the pot to keep those they have on-board, industry executives say.

Enhanced Experiences and Finer Measurement

In many ways, these dynamics favor HR tech firms. With increases flat, Mercer noted, programs that go beyond compensation and core benefits hold more weight in terms of employee experience. Improved career development opportunities, training and programs that support financial, physical and even emotional well-being are growing in importance. Measurement of engagement and other components of the employee experience will grow right along with them, as will the apps, videos and other technical tools that impact how workers integrate their jobs and personal lives.

However, noted Mary Ann Sardone, a Mercer partner and leader of its North America Rewards practice, “Although the full value proposition is on the table for investments, employers should proceed with caution. Compensation is still the top priority for employees. If you get it right, the other programs can be great differentiators. If you get it wrong, the rest may not matter.”

Image Copyright: Steve Estvanik / 123RF

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