About half of employers worldwide report that they are effectively meeting each of the six distinct core objectives of compensation programs, as this is the most frequently cited reason why employees join and stay with an employer.
This is highlighted in the 2024 study on the effectiveness and design of compensation programs conducted by WTW, a global consulting and brokerage firm, which was published on its website.
The survey revealed that among the six main objectives related to the effectiveness of compensation programs—attracting employees, retaining employees, promoting fair compensation among employees, fostering competitive compensation compared to employees in other organizations, aligning with business strategy, and rewarding employees for performance in the current year—around half of employers report being effective in two of these objectives, while less than half are effective in each of the other four.
However, corresponding research indicates that 48% of employees cite compensation as one of the key factors for attraction and retention—the most frequently mentioned factor for both—and more than half of employees (56%) would consider another job offer for better pay.
"Organizations likely have not been able to focus on the factors that influence the effectiveness of their compensation programs in recent years, given the recent dynamics of the labor market," notes Lori Whisper, Managing Director and Head of Global Work & Rewards Solutions at WTW.
This gap is likely partly due to changes that have affected the nature of work over the past few years. Labor market conditions such as talent shortages, generational shifts, and new work models have contributed, along with socio-economic trends like the global pandemic and high inflation.
In addition to these external factors, a lack of internal communication impacts the overall effectiveness of compensation. Fewer than one in four say they effectively communicate how employee compensation is determined. Moreover, more than half of employers (58%) believe that wage compression is an issue, and the same percentage thinks it will become a problem in the coming years.
Among companies that have updated their compensation philosophy in the past five years, the most frequently cited reasons for these changes are to enhance attraction or retention (69%) and improve employee experience (51%). Other reasons include ongoing or regularly scheduled reviews and updates (47%), increasing employee understanding (45%), and enhancing compensation transparency (44%).