Power up your compensation and total reward strategies for 2023

Unit4 Human Capital Management (HCM), Global

from Unit4 Communications December 19, 2022 | 4 min read

The HR Research Institute helps organizations keep their finger on the pulse. The future of compensation and total rewards 2022-23 survey provides you with insights into the current and future state of compensation and rewards and their effect on employee retention. It gives you the opportunity to compare your organization to your peers and helps you identify opportunities for improvement.

You may like to share these insights with your executive teams, helping you to secure the investments needed to keep the compensation strategy current so that it can deliver on all demands.

For this report, compensation combines salaries, wages, bonuses, and all monetary incentives that employees receive. Total rewards (TR) are a combination of compensation and other benefits such as health insurance, flexible working, and wellness packages.

A summary of the key findings

Stakeholders agree that keeping compensation and total rewards strategy up to date is important, and many are redesigning their programs. Over three-quarters of all respondents report that all their key stakeholder groups agree that modifying total rewards to address today’s changing times is important or very important.
Despite the belief in the importance of compensation and total rewards, many systems remain underdeveloped. 42% of organizations describe their approach to total rewards as “undeveloped” or “beginning,” and only 7% describe their approach as “advanced.”
Retaining key talent is the most common objective of total rewards, cited by 75%. Attracting key talent is the second most common objective, cited by 66%.
The top five major challenges facing compensation and total rewards systems are that they are not well understood by employees (62%), not seen as differentiating relative to competitors (42%), not agile and flexible to changing business circumstances (41%), and not personalized to individual employee needs (40%), and not transparent enough (40%).
Over the next two years, the top four most important features of compensation and total rewards will be their ability to stay competitive in the industry (74%), equitability and fairness (49%), agility and flexibility (46%), and focus on career development (41%).
69% of organizations give merit pay incentives based on performance.
The four most widely used total rewards metrics are pay ranges (upper/lower limits of compensation), the total cost of the workforce, comp-ratio (compare individual salary to the mid-point of a salary range), and range midpoint.
Some organizations are deploying a range of benefits relevant to health and wellness, with the most widely cited being generous short-term and long-term medical leave policies.
The most common work-life benefits are flexible work arrangements, paid time off, and family or personal counseling services.
Just 63% of organizations say they educate employees about benefits and total rewards, and only 35% say there is upward communication of feedback and reward program effectiveness.
Compared to less mature TR organizations, more mature TR organizations are 10 times more likely to use statistical analysis to evaluate equal pay for equal work and 5 times more likely to say there is pay transparency.

Download the full report here to see all of the statistics and explanations.

The objectives

Retaining key talent is the most cited objective of total rewards design. Attracting key talent comes a very close second. A recent HR.com report found that compensation and benefits-related issues were the most influential driver of employee retention. Motivation and incentives are also high on the list. However, top HR professionals will know that it is challenging to design incentive plans that achieve goals without negative side effects – time and expertise are needed to get this right.

The benefits included in TR

Most organizations (73%) now offer flexible working, as many people now work remotely and autonomously. As the recent pandemic shone a light on mental health issues, 60% of organizations now offer family or personal counseling. About two-thirds of organizations (65%) provide generous short-term and long-term medical leave policies with clearly stipulated durations and possibilities for extensions and coverage for a wide range of physical and mental health services and medications.

The challenges

Despite TR being highlighted in many industries of late, with only 7% of respondents describing their total rewards approach as “advanced” and 42% as only “beginning” or “undeveloped,” these organizations may be at a disadvantage when attracting and retaining top talent.

Total rewards systems not being well understood by employees is a major challenge and one HR leaders must address swiftly if they are to be competitive in the recruitment market.

A lack of metrics is also a problem. 85% of organizations say they use some kind of metric, but the only metric captured by 69% of respondents is the pay range (upper/lower limits of compensation).

Lacking agility could be a serious business problem, too, if it affects attracting and retaining people. And a lack of personalization will also have a detrimental effect on recruitment and retention.

The future of total rewards

80% of respondents believe compensation and total rewards will become more important over the next two years. Only 1% of respondents believe compensation and total rewards will become less important. Nearly half of respondents (46%) say the most important feature will be that it is agile and flexible.

Half of more mature total rewards organizations are currently redesigning their compensation and total rewards strategy or have done so in the last year.

More mature TR organizations are more than five times as likely as less mature ones to offer pay transparency, more likely to evaluate effectiveness, more likely to evaluate equal pay for equal work, more likely to track compensation and total reward metrics, more likely to offer merit pay incentives based on performance, and they are more likely to see agility as important for the future.

The key takeaways

The importance of compensation and total rewards can often be overlooked by an organization’s executives. HR leaders need to partner with the c-suite and develop sophisticated compensation and reward strategies that will attract and retain top talent.

The principal key takeaways from this report are:

Compensation is one of the areas in HR that benefits the most from technology, so be sure to power up.
Be agile and flexible.
Consider personalization.
Be competitive in mental health benefits.
Make flexible working work.
Build robust metrics.
Don’t lose focus on the key objectives of attracting and retaining talent.
Communicate effectively.
Demonstrate fairness.

How Unit4 can help your organization

Unit4 HCM software for compensation planning allows you to plan, make, and communicate pay decisions in a single, simple-to-use, and easy-to-implement solution. You can deliver clear, accessible information that today’s workforce expects around pay decisions and opportunities. You can also define your unique programs, policies, and compliance requirements in the solution, gain insight into your organization, identify trends and issues, and create a single source of truth for all compensation planning data.

Our next-generation enterprise solutions power many of the world’s most people-centric mid-market organizations. Our state-of-the-art cloud platform, ERPx, brings together the capabilities of HR, Financials, Procurement, Project Management, and FP&A onto a unified cloud platform that shares real-time information and is designed with a powerful, people-centric approach, so employees can benefit from better insight and become more effective and increasingly engaged. It supports rapid and continuous change while delivering an individualized fit for customers at scale, delivering the right tools to unify the processes across their organization and connect their people.

You can check out our suite of solutions here and download the full future of compensation and total rewards 2022-23 report here. Don’t have the time to read the full report? Check out the infographic with key findings.