The Biggest Compensation Trends of 2022 Your Company Must Know
Twenty-five hundred years ago, the Greek philosopher Heraclitus famously declared, “The only thing that is constant is change.” In just the past two years, radical shifts in America’s business landscape have more than confirmed Heraclitus’ wry observation. Between COVID-triggered lockdowns, supply chain failures, The Great Resignation, the rise of remote working, and the return of 1970s-style inflation, business of all types and sizes are being forced to reevaluate how they manage and recompense employees.
Currently, company compensation specialists must respond to four trends now dominating the arena of employee pay and benefit plans:
TREND 1: PAY EQUITY
Pay equity is an issue that cannot be ignored. Many states have already instituted laws prohibiting companies from paying employees differently based on factors such as age, sex, race, and/or ethnicity, and more states are expected to follow suit soon. In California, the 2016 Fair Pay Act (AKA California Equal Pay Act)—effectively an addendum to the 1949 Federal Equal Pay Act—and subsequent bills have given workers significant leverage when it comes to suing companies for what they perceive as discriminatory compensation practices.
Significant features of the California Equal Pay Act include:
Requiring equal pay for employees who perform “substantially similar work,” when viewed as a composite of skill, effort, and responsibility. (This replaces the concept of “equal pay for equal work.”)
Eliminating the requirement that the employees being compared work at “the same establishment.” (See Trend #2, below.)
Making it harder for employers to justify inequities in pay via the “bona fide factor other than sex” defense.
Ensuring legitimate factors relied upon by the employer for pay inequities are applied reasonably and account for the entire pay difference.
Explicitly stating retaliation against employees who seek to enforce the law is illegal and making it illegal for employers to prohibit employees from discussing or inquiring about co-workers’ wages.
Extending the number of years employers must maintain wage and other employment-related records from two to three years.
To comply with the law, organizations must consider such steps as promotions, salary bumps, and other equity adjustments. But how do you know if your company even has an equity pay problem? In most cases, discrimination is not the product of an overt policy but rather results from years—perhaps decades—of minor, subconscious, often culture-influenced inequities that have only compounded over time.
The solution is to conduct a Pay Equity Audit (PEA) comparing the compensation of employees doing “like for like” work and seeking reasons why inequities may occur. For smaller companies of 50 people or less, such an audit can usually be done in-house by the Human Resources (HR) department. However, for larger organizations, an outside compensation consulting firm is usually required.
By analyzing the gender pay gap and overall pay patterns in a systematic way, employers can better understand pay bias and pay gap inequities in the compensation of women, minorities, and protected classes.
TREND 2: GEOGRAPHIC PAY DIFFERENTIALS FOR REMOTE WORKERS
Recently, I wrote about how the rise in telecommuting/remote working is forcing companies to more seriously consider where their employees live/work when determining pay. This is because the value of money is very much a function of the local cost-of-living. (Example: $100,000 a year in Minneapolis buys a significantly higher standard of living than the same $100,000 a year in Boston or San Francisco.)
For more on this increasingly important topic, please read my article What To Do About Pay for Remote Workers.
TREND 3: WORK/LIFE BALANCE CONSIDERATIONS
Employee demands for a better work/life balance were trending even before COVID-19, but they have only grown stronger and louder because of the pandemic. It is now a given that companies must offer more than just a competitive salary to attract and retain skilled talent. (Many workers wish to extend remote work policies put in place during 2020, plus receive flexible time and leave provisions and training opportunities to enhance or learn new skills.)
Benjamin Laker, writing for Forbes, noted the World Health Organization’s assertion “that stress is the health epidemic of the 21st century, and that is without considering the impact of coronavirus on the international economy.” There is little doubt the challenge of juggling personal and professional considerations during COVID-19 has put the issue on the front burner for the foreseeable future.
TREND 4: PAY TRANSPARENCY
Every company must be able to answer this fundamental question: How is pay determined; what is the bonus structure; and who is eligible? A recent survey conducted by Korn Ferry reported 75% of human resource professionals indicated transparency on pay and rewards is increasingly critical to employee recruitment and retention. To satisfy this demand, organizations are sharing more salary information with workers than ever before, including how pay is determined, what is an individual’s salary level or salary grade/band and range, how their position compares to similar positions at direct competitors in the broader external market, and whether their position is internally equitable with comparable positions.
In the past, companies often sequestered such information, fearing it would cause dissention among the ranks and lead lower-paid workers to demand salary increases. Well, as it turns out, such fears were often well-founded. Employees aren’t putting up with being treated unfairly anymore, and in today’s economy, they have power to do something about it. Which, in the end, may turn out to be a good thing for everybody.
Is your company up on the top employee compensation trends? If not, you’re at a dangerous competitive disadvantage. My team of experienced compensation and corporate culture specialists can ensure your organization attracts and keeps the best talent available. For more information, contact me at laura@conoverconsulting.com.