Only 64% of organizations gave base pay raises in 2020, and roughly the same percentage plan to give raises this year, according to PayScale’s 2021 Compensation Best Practices Report. This number is down from 2019, when 82% of organizations gave raises. It’s also significantly lower than expected — before COVID-19 hit, 85% planned to give raises in 2020.
As a whole, the survey responses, from more than 5,000 employers representing a range of industries, suggest that there’s a gap between organizations’ compensation priorities and their compensation practices.
Eight in 10 organizations say their approach to compensation is driven by the desire to keep their employees engaged and retain talent. At the same time, only 44% of organizations have a compensation strategy in place, though 31% are actively working one.
Overall, the organizations most likely to have a formal compensation strategy tend to be larger (750 or more employees). There are also differences among industries, with organizations in energy and utilities (71%), finance and insurance (59%), and education (53%) more likely to have strategies in place. Developing solid compensation strategies will be critical for organizations to meet their employee engagement and talent retention goals.
Here are some additional findings from the report:
- COVID-19 affected organizations differently. About 45% experienced a negative impact on revenue, 25% reported a positive impact, and 30% saw no impact at all. Still, roughly one-third of organizations instituted pay freezes, while smaller percentages took actions like implementing pay cuts, deferring raises or promotions, and reducing or canceling bonus pay. On the bright side, 27% actually increased pay, at least temporarily.
- Annual wage growth continues to be low. Prior to the Great Recession, wages grew around 4-5% annually, but since then wage growth has averaged 3% or less. This trend is likely to continue in 2021 — 67% of organizations that plan to give base pay raises this year expect those raises to be 3% or less.
- Compensation strategies are changing. 65% of organizations believe it will be important to change their compensation strategy over the next 12-18 months in response to factors including the economy, talent recruitment and retention, and pay equity.
- Equity is important. Almost half (46%) of organizations plan to do a pay equity analysis this year. For organizations with 750+ employees, the proportion increases to more than half.
- Transparency is aspirational. PayScale has developed a five-point pay transparency spectrum that measures how much information organizations share. Currently, roughly two-thirds of companies are at or near the lower end, meaning that they share no to little information. However, 55% aspire to at least the mid-point of the scale, which requires having a compensation plan in place and sharing pay ranges with employees.
For more insights, download PayScale’s full report.
