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www.payscale.com 1

2016 Compensation Best Practices Report

Escape to 2016 Compensation Best Practices Report

PAYSCALE RESEARCH REPORTPAYSCALE RESEARCH REPORT

www.payscale.com 2

Contents Executive Summary 3

Survey Methodology 4

Welcome to Comptopia 5

Meet the Comptopians 5

Top 5 Insights from CBPR 2016 6

2015 Year in Review 7

Come Sail Away to 2016 14

The Corporate Chasm: A Few Coconuts Short 17

Comptopians Tell All: What Top Performers Do Differently 19

Variable Pay: A More Diverse Budget Bouquet 22

Data Debate: Quality Eclipses Methodology 23

Millennial Island, Still Shipwrecked 24

Don’t Miss the Boat: Last Year is so Last Year 25

About PayScale 26

www.payscale.com 3

Executive Summary This marks the seventh year PayScale has analyzed compensation practices and published the Compensation Best Practices Report (CBPR)—a comprehensive survey that reflects employers’ attitudes and perceptions about key business issues including compensation practices, raises, incentive and variable pay, hiring trends, HR technology, and other topics related to effective talent management. The 2016 CBPR represents PayScale’s largest research endeavor yet, as we compiled responses from nearly 7,600 business leaders from companies of every size across a wide section of industries.

For the first time, we compare top performing companies—defined as those who were first in their industry and exceeded revenue projections in 2015—to all respondents, revealing a correlation between modern pay practices and business success. Top performing companies are more likely to embrace transparency, exercise variable pay practices, and report valuing their employees more highly than average companies. This link allows top performers to reach the desirable land of Comptopia—where smart pay practices drive business results, and all comp woes are cast away.

The CBPR also shows that companies are optimistic for the future and expect 2016 to be prosperous, with the majority of respondents expecting to see financial improvement. Though hopes for 2016 are high overall, there are a few obstacles that have persisted year over year. Employee retention continues to be a top concern for the majority of respondents for the fourth year in a row. For the fifth year in a row, respondents cite compensation as a top reason people voluntarily left a company.

This year’s results show that, despite buzz surrounding employee engagement, there is still a chasm between employee and employer perceptions on many key issues: pay perceptions, pay transparency, and employee value. Employee and employer perceptions did align in a few areas, namely the impact of a manager on employee satisfaction and the value of investing in learning and development.

The 2016 CBPR also reveals key shifts in attitudes around pay transparency, employee engagement, and variable pay. Our data shows a steady increase in the number of companies giving bonuses since 2013. We believe this trend of giving bonuses is the result of continued low wages for employees and also a very competitive talent environment for companies in

certain industries.

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Survey Methodology Location

The most recent Compensation Best Practices survey was conducted in November

and December 2015. There were nearly 7,600 respondents from across the globe.

The US, Canada and the UK had the largest number of respondents.

Company Size

Survey results were analyzed to create comparisons between small companies

(<100 employees), medium companies (100- 1,000 employees), and large

companies (1000+ employees) as well as comparisons by industry.

Industry

The top five industries represented in the survey were Manufacturing, Technology,

Medical & Healthcare, Nonprofit, and Education.

Job Level

51% of respondents identified as managers, while 27% identified as vice president or

C-level. 22% identified as an individual contributor.

Welcome to Comptopia In 2016, cast your compensation cares away and escape to an

idyllic island known as Comptopia. In this sparkling land, your pay

struggles melt away like an ice cream cone in a sizzling tropical

locale. Candidates accept your first offer and don’t try to use you

as leverage against a competitor’s offer. Hiring managers nod

agreeably when you recommend a salary. Market rate is no longer

a hazy mirage, but an accessible metric that appears magically at

your fingertips, on command. With this insider’s guide, you’ll get a

step-by-step map of what it takes to join the Comptopians, carefree

natives whose top performing practices make every day of their lives

a pay paradise.

Meet the Comptopians Comptopians are those whose comp woes are whisked away

by putting compensation best practices into play. For the first

time ever, we compare the compensation practices of average

companies to those of top performing companies. Top performers

are defined as those who are number one in their industry and

exceeded revenue projections in 2015.

Top 5 Insights from CBPR 2016

While 73% of employers consider their employees fairly paid, only 36% of employees feel they are paid fairly.

For the fifth year in a row, compensation, aka “seeking higher pay

elsewhere,” was a top reason employees left companies, falling second

only to “personal reasons/life change” (marriage, spouse relocating,

parenthood, etc.)

Almost 40% of companies report that they have transparent, open communication around pay. Top performing companies are significantly

more likely to embrace transparency, at 47%.

Top performers pay their people. In 2015, 90% of top performers gave pay raises compared to 84% of average companies.

44% of respondents cited replacing traditional annual performance reviews with ongoing, real-time feedback as the hottest HR trend for 2016.

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2015 Year in Review In 2015, 84% of average companies and 90% of top

performing companies gave pay increases. Small

companies were less likely to give pay raises, at just

under 80%. Nearly 87% of both large and medium sized

companies gave raises in 2015. 89% of companies in the

Retail & Customer Service Industry gave raises in 2015,

while only 78% of those in the Education Industry gave

raises.

Of those who gave raises, 39% of average companies

and 42% of top performing companies gave increases

to 96-100% of their employees. Nearly 80% of average

companies and top performing companies alike gave an

average increase amount of a 0-5%. Only 14% of average

companies and 15% of top performing companies who

gave raises in 2015 reported giving average increases in the

range of 6-10%.

Compensation Structures: Who’s on First?

The Head of HR was still most likely to be responsible for

setting compensation structures in 2015, with this being

the norm in nearly 50% of average companies and 55%

of top performing companies. However, CEOs were most

likely to set compensation structures in small companies,

at 53%, while less than 20% of large companies report this

being a CEO’s task. The majority of medium companies

report that the Head of HR is responsible for setting

compensation structures (65%).

In 2015,

90% of top performing companies gave

increases.

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For the majority of small and medium companies, CEOs

continue to set the compensation budget. In large

companies, we see this trend shift, as only 36% report

that this is the CEO’s responsibility. CEOs only slightly

edge out CFOs in this area at medium companies, with

49% of medium companies reporting that this is a CFO

responsibility and 52% saying it belongs to the CEO.

The landscape also varied when it came to the

employment of dedicated compensation professionals,

either internal or external. Small and medium companies

reported being unlikely to have an internal compensation

professional or external compensation consultant setting

compensation structures. Only 5% of large companies

report hiring an external compensation consultant

to set compensation structures; however, 32% report

that compensation structures are set by an internal

compensation professional.

Nearly 65% of all average companies believe HR and

Finance should remain independent, stating they believe

HR should report to the CEO. Less than 8% of average

companies and top performing companies alike report

that they believe HR should report to Finance. This belief is

consistent across companies of all sizes and industries.

Who Uses Salary Ranges? Assigning salary ranges to groups of jobs (grades) is the

most common reported way of structuring compensation,

at 40%. Small companies are least likely (30%) to structure

comp this way; as 44% of small companies structure

compensation by individual salary ranges for each position

instead.

Nearly

65% of all average

companies believe HR and Finance should remain independent.

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Strategy and Structure

38% of average companies report having a formal

compensation strategy, compared to 49% of top

performing companies. Large companies were nearly twice

as likely as small companies to have a formal compensation

structure.

The War for Talent Rages on

The skills gap conversation continues, as 55% of all

companies believe there is still a lack of qualified applicants

for open job positions—this is true for top performing

companies as well. As usual, the talent wars are felt most

keenly in the Technology Industry. More than 70% of

respondents in the Science & Engineering Industry believe

that there is a lack of qualified applicants for open positions,

while only 44% of respondents in the Nonprofit Industry

believe this to be true.

Percentage of companies that believe there is a lack of qualified applicants for open job positions

Business & Marketing

Engineering & Science

Retail & Customer Serv.

Education Manufacturing Medical & Healthcare

Nonprofit Technology

50%

71%

58%

47%

65% 56%

44%

59%

For positions that have remained open for more than six

months, we see these numbers increase significantly.

For these positions, nearly 64% of average companies

cite “scarcity of qualified applicants” as the reason those

positions remained unfilled. This number increases to more

55% of companies

believe there is still a skills gap.

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than 70% for top performing companies. Nearly 80% of

respondents in the Science & Engineering Industry cite this

as the reason for positions being open for six months or

more, while less than 50% of respondents in the Education

and Nonprofit industries cite this as the reason.

Is Money the Answer?

Less than 23% of all respondents believe that the inability

to offer a competitive wage was the reason positions

remained unfilled for six months or more. Small companies

were least likely, 22%, and large companies were more

likely, 26%, to cite this as a reason. Only 14% of respondents

from the Science & Engineering Industry blame competitive

wages as the culprit, while 41% of those in the Education

Industry and 33% of those in the Nonprofit Industry cite

lack of ability to offer competitive wages as their primary

obstacle to recruiting top talent.

Some positions are harder to fill than others. 23% of

average companies and top performing companies alike

report having the most difficult time filling open positions

in IT. Only 7% of average and top performing companies

alike have the most difficult time filling positions in

marketing.

Large companies were most likely to have positions open

for six months or more, at 54%, while small companies

were least likely, at 24%. Respondents in the Science &

Engineering Industry were, once again, most likely to

have positions open for six months or more, at 47%, while

respondents in the Nonprofit Industry were least likely, at

26%.

23% of average

companies and top performing

companies alike report having

the most difficult time filling open

positions in IT.

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Open Positions for 6 Months or More

Less than 100 Employees

100-1,000 Employees

More than 1,000 Employees

24% 40% 54%

For competitive jobs, more than half of average companies

and 61% of top performing companies report paying more

for competitive jobs (i.e.: above the 50th percentile, or

market rate). 67% of respondents from the Technology

Industry report paying more for competitive jobs. 38%

of respondents in the Technology Industry classified

more than half of their jobs as competitive, while 43%

of respondents in the Science & Engineering Industry

classified more than half of their jobs as competitive.

Although employer opinions vary by industry on whether

compensation is the reason they can’t recruit, the majority

report it’s the reason they can’t retain. For the fifth year in a

row, companies cited compensation—defined as ‘seeking

higher pay offer elsewhere’—as a top reason for voluntarily

leaving a company, second only to personal reasons

(family, marriage, health, school, etc.).

The majority of employers cite compensation as the greatest

obstacle to retention.

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Company Growth Gap: The Big Get Bigger; the Small Stay Small

Large companies were most likely to experience growth

in 2015, at 62%, while small companies were least likely to

experience growth.

Changes in Organization Size: 2015 and Comparison to Previous Years

• As shown in the chart below, more organizations grew

in 2015 than in 2014, 2013, 2012, and 2011.

• The change seems to indicate continued improvement

in the economy, as most companies experienced

growth in 2015.

Change in Organization’s Size: 2011 - 2015

56%

20152011 2012 2013 2014

34%

10%

37%

49%

14%

50%

32%

18%

52%

38%

9%

55%

36%

9%

Increased Stayed the Same Decreased

Change in Company Size in 2015 for Top Performing Companies

• When comparing top performing companies to average companies, we see that top performing companies were much more likely to have experienced growth than average companies in 2015.

• As the chart below indicates, the majority of top performing companies grew in 2015 and only a slight percentage reported a decrease in size.

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Increased Decreased Stayed the Same

69% 4% 27%

Change in Organization Size in 2015 by Company Size

• Only 10% of companies reported a decrease in size in 2015—regardless of company size.

• As the chart below indicates, small companies (<100 employees) were most likely to stay the same size in 2015, while large companies (>1,000 employees) were

most likely to increase their size. Change in Organization’s Size in 2015 by Company Size

About the Same size Have Grown Have Gotten Smaller

38%

31% 28%

51%

59%

62%

11% 10% 10%

Small Medium Large

Change in Company Size by Industry

• The Retail & Customer Service Industry, the Technology

Industry, and the Science & Engineering Industry were

the top three industries to have experienced growth in

2015.

• Respondents in the Manufacturing Industry were the

most likely to report a decrease in size in 2015.

• Respondents in the Education Industry were most likely

to report having stayed the same size in 2015.

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Change to

Workforce Increase Stay the Same Decrease

Business and

Marketing 59% 32% 9%

Science and

Engineering 61% 27% 13%

Retail and

Customer

Service

62% 31% 7%

Education 45% 45% 10%

Manufacturing 54% 32% 14%

Medical and

Healthcare 60% 35% 5%

Nonprofit 47% 35% 8%

Tech 63% 25% 12%

Other 54% 34% 12%

Come Sail Away to 2016 In 2016, the horizon looks bright. The majority of

employers are hopeful about the future, with 71%

expecting their financial situation to improve in 2016,

and only 6% expecting it to weaken. Top performers are

more optimistic than most. 78% of top performers expect

financial performance to improve, and only 3% expect it to

weaken.

71% of employers are expecting their financial

situation to improve in 2016.

www.payscale.com 15

Smaller companies are slightly more optimistic than

medium and large companies with 73% of respondents

expecting improvement versus 70% of respondents from

medium-sized companies, and 65% of respondents from

large companies. The Science & Engineering Industry is

most optimistic, with 87% expecting improvement to their

financial situation in 2016. The Education Industry is less

optimistic with 54% expecting improvement.

Percentage of Companies Expecting Financial Improvements in 2016 by Industry

Business & Marketing

Engineering & Science

Retail & Customer Serv.

Education Manufacturing Medical & Healthcare

Nonprofit Technology

78% 87%

77%

54%

72% 69%

58%

82%

Some trends persist from past years. Retention remains a

top or high concern amongst the majority of employers

(57%) for the fourth year in a row. However, retention

concerns aren’t translating into raises. Only 8% of

respondents report ‘retention’ as the main reason they will

give raises in 2016. The percentage of companies giving

raises as a retention effort significantly increases when

looking at the Science & Engineering Industry (17%) as well

as the Technology Industry (12%).

Both industries report more than half of their jobs are

competitive and cite difficulty filling open positions due

to a lack of talent. More than 65% of respondents in the

Science & Engineering Industry cite retention as a top or

high concern for 2016 and nearly 70% from the Technology

Industry echo this sentiment.

70% of technology

industry employers cited

retention as a top or high concern.

Retention remains a top or high

concern amongst the majority of

employers

(57%) for the fourth year

in a row.

www.payscale.com 16

Concerns about employee retention increased between

2009 and 2013. While the trend has leveled off somewhat

in the last 12 months—with no increase over the last year—

it would be a mistake to infer that retention is a non-issue.

The fact remains; the majority of employers (57%) are still

worried about keeping their employees.

2009

70%

60%

50%

40%

30%

20%

10%

0% 2010 2011 2012 2013 2014 2015 2016

Percent High or Top Concern

28% 20%

47% 49%

59% 57% 57% 57%

Employee Retention Concerns Over Time

Medium-sized companies were most concerned about

retention, at 61%.

Ahoy Increases!

87% of average companies and 94% of top performers

plan to give raises in 2016. However, of those who plan

to give raises, 77% percent of average companies and top

performers alike expect the average raise given to be from

0-5%. The Technology Industry plans to give the highest

raises, with 19% of respondents reporting they plan to give

average raises in the range of 6-10%.

Bonuses continue to be a popular option, as 74% report

giving bonuses, up more than 5% since 2013. Respondents

in the Science & Engineering Industry were most likely to

give bonuses, at 85%.

Medium-sized companies were most concerned

about retention, at

61%

www.payscale.com 17

The Corporate Chasm: A Few Coconuts Short Despite an increased HR spotlight on employee

engagement, it remains more of a buzzword than an

actual business practice. Associate surveys aren’t cutting it.

Employers are still severely out of touch with the needs and

feelings of their employees. Our data reveals a vast chasm

between employer and employee perceptions around

almost every key engagement metric: pay, transparency,

and overall job satisfaction.

Employers Employees

Believe that employees at their company are paid fairly.

73% 36%

Believe that employees are valued at work

78% 45%

Report that their company is transparent about pay

40% 21%

On average, nearly 73% of employers believe their

employees are paid fairly. Top performing companies are

even more confident, coming in at 83%.

However, 64% of employees disagree, stating they are paid

“below average” compared to their colleagues in similar

roles.

Similarly, nearly 40% of employers report that they have

transparent, open communication around salary, but only

Our data reveals a vast chasm

between employer and employee

perceptions around almost

every key engagement

metric.

“

”

www.payscale.com 18

21% of employees “agree” or “strongly agree.” Even so, few

employers plan to change their non-transparent ways: less

than one in five non-transparent companies are planning

to embrace this pay practice in 2016.

However, there were areas where employees and

employers were aligned. 35% of employers cited animosity

with a direct supervisor or manager as one of the top

three reasons employees left in 2015. This lines right up

with employee sentiment, as 67% of respondents report

that having a great relationship with their direct manager

is critical to their job satisfaction. Bottom line: everyone

agrees that managers can make or break an employee’s

experience. Businesses would do well to choose their

leaders carefully.

There was also a similar alignment on the importance of

learning and development. 45% of employees “agree”

or “strongly agree” that their employer provides them

with enough opportunity for learning and development.

Employers confirm this, as 58% of companies plan on

offering learning and development opportunities in 2016

to help recruit and retain high-value employees. Moral of

the story? Both employers and employees are wising up to

the fact that learning and development can be one of the

most valuable perks. This makes sense—continuing training

and education can improve not just an employee’s current

salary, but future compensation down the line. Luckily,

employers are prepared to accommodate this trend.

35% of employers cited animosity with a direct supervisor

or manager as one of the top three reasons

employees left in 2015.

www.payscale.com 19

Comptopians Tell All: What Top Performers Do Differently Top performing companies are more likely to pay fairly,

practice pay transparency, and embrace variable pay—49%

of top performers report having a formal compensation

strategy versus only 38% of average companies. Top

performers also report valuing their employees more highly

than average companies and are more likely to invest in top

talent—61% are willing to pay above the 50th percentile for

competitive jobs.

Top performers by industry Here are the industries with the most top performing

companies:

Manufacturing Technology Nonprofit

16% 11% 11%

While some companies still tremble at the thought of

practices like pay transparency, with the risk comes reward.

The data shows a distinct correlation between modern pay

practices and business success, as top performers were

defined as companies that were number one in their industry

and exceeded their revenue goals in 2015.

61% of top performers are willing to pay

above the 50th percentile for

competitive jobs.

www.payscale.com 20

Average companies

Top performing companies

Embrace

transparent

communication

around pay

40% 47%

Give bonuses 74% 81%

Give team bonuses 26% 30%

Agree “our people

are our best asset” 78% 86%

Are increasing their

budget for bonuses

in 2016

41% 50%

Provide a total

rewards statement

for compensation

39% 47%

Transparency: More Talk, Less Treasure

As mentioned above, 40% of employers reported having

transparent, open communication around compensation.

This number in itself is striking. What’s even more intriguing

is how the number increases when you look at top

performers, 47% of whom embrace pay transparency.

The data shows a distinct

correlation between modern pay practices and business success.

www.payscale.com 21

Not every company is equipped to embrace transparency.

While 35% of companies report offering training to

managers to teach them how to talk to employees

about compensation, only 17% of companies report

being very confident in managers’ abilities to have

tough conversations about compensation. Only 11% of

respondents from the Manufacturing Industry and 10% of

respondents from medium-sized companies are confident

in their managers’ ability to talk pay.

When it comes to transparency, employers would do well

to arm their troops. Not only does the CBPR data show that

top performers practice transparency, a separate PayScale

survey of 71,000 employees found that 82% of employees

would feel satisfied with below-market pay, as long as their

employer was transparent about the reasons.

Moral of the story? Don’t assume more money is the

answer. Try additional communication before resorting to

additional compensation. Train your people to have those

conversations.

82% of employees

would feel satisfied with below-market pay, as long as their employer

was transparent about the reasons.

View the infographic!

www.payscale.com 22

Variable Pay: A More Diverse Budget Bouquet Contrary to popular belief, it’s actually not all about that

base. Merit still matters most, with 50% of employers giving

raises based on performance. However, bonuses are also

a strong focus for compensation plans this year. In fact,

the proportion of companies who report giving bonuses

has steadily increased over the last four years, up to 74%,

compared to 69% of respondents in 2013.

Top performing companies are more likely to give bonuses

to their employees, as 81% of top performers gave bonuses

in 2015, compared to 74% average companies. Top

performers are also increasing their average bonus size at

a greater rate. Nearly half of all top performing companies

who give bonuses are increasing the size of their bonus

budget in the coming year.

There is also more creativity and variety to the type of

bonuses administered by top performers. For example,

top performing companies are more likely to provide

“team incentive bonuses” to their employees. 30% of top

performing companies report providing team incentive

bonuses, compared to 26% overall.

81% of top performing

companies give bonuses, as opposed to

74% overall.

Top performing companies also offer more of a

compensation mix than the average

company.

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Top performing companies also offer more of a

compensation mix than average companies. They

offer everything from merit-based pay plans, to non-

discretionary incentive-based pay plans, to discretionary

bonus plans, stock options, learning and developmental

opportunities, as well as other perks like gym memberships

or catered lunches.

Data Debate: Quality Eclipses Methodology More than half of companies reported being open to both

employer-submitted data and employee-submitted data,

as long as the data is accurate and fresh. This compares

to 20% of companies that reported preferring employer-

submitted data because it’s what they’ve been using for

years. Lastly, only 14% of companies felt that employee-

submitted data is unreliable because “employees can’t be

trusted to tell the truth about their salaries.”

Speaking of Data…

58% of all companies reported using online salary data

to set salaries, but less than 40% of those respondents

reported paying for the data. However, nearly 65% of top

performing companies reported using online salary data to

set salaries and nearly 45% of top performing companies

who use online salary data pay for that data, helping to

ensure fresh, reliable data.

More than half of companies report having no preference

between employer- submitted data and employee- submitted data.

www.payscale.com 24

Is it time to jump ship on traditional salary surveys?

Nearly 41% of all respondents report using traditional salary

survey data to set salaries; however only 27% of those using

traditional surveys, associate data, or a consultant to set

salaries report being ‘very satisfied’ with their current salary

market data. Additionally, nearly 30% of respondents report

that they do not participate in any traditional compensation

surveys. Of those that do participate in traditional

compensation surveys, nearly 20% of respondents are

spending three days to two weeks filling out compensation

surveys.

Millennial Island, Still Shipwrecked As the 2015 CBPR also found, millennials are yet to steer

the ship. More than 50% of average companies are not

changing compensation strategies to accommodate

millennials. However, these numbers are different for

top performing companies, as nearly 35% stated they are

changing compensation strategies. For those changing

strategies, many cited changes in paid time off policies,

wellness benefits, and increases in philanthropic and

diversity initiatives.

More than

50% of average

companies will not change

compensation strategies to

accommodate millennials.

Only

27% of those using

traditional surveys, associate data, or a consultant to set salaries

report being ‘very satisfied’ with their

current salary market data.

www.payscale.com 25

Don’t Miss the Boat: Last Year is so Last Year Our final statistic addresses the rising trend of real-time

communication. When asked what the biggest trend that

would shake up the HR world next year would be, 44% of

all companies cited eliminating traditional performance

reviews in favor of real-time feedback. Could a change in

tide be headed HR’s way?

Visit the interactive experience to get a high-level view of

how companies view their performance.

Want more? Don’t forget to register for PayScale’s 2016 Compensation Best Practices

Report Highlights Webinar. CLICK HERE!

www.payscale.com 26

About PayScale Cloud software, crowdsourced data and unique algorithms

power the world’s largest real-time database of rich salary

profiles giving PayScale the unique ability to provide job

seekers and employers alike immediate visibility into the

right pay for any position. PayScale’s cloud compensation

software is used by more than 3,500 customers including

Bloomberg BNA, Cummins, Intercom, Clemson University

and Signature HealthCARE.

Get a Demo

Further Resources

Employee Engagement Infographic

Transparency Best Practices Webinar

Turnover: The Good, the Bad, and the Ugly