Compensation Programs and Practices research. A report by WorldatWork, October 2012

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1 Compensation Programs and Practices research A report by WorldatWork, October

2 Contact: WorldatWork Customer Relations N. Northsight Blvd. Scottsdale, Arizona USA Toll free: Fax: WorldatWork Any laws, regulations or other legal requirements noted in this publication are, to the best of the publisher s knowledge, accurate and current as of this report s publishing date. WorldatWork is providing this information with the understanding that WorldatWork is not engaged, directly or by implication, in rendering legal, accounting or other related professional services. You are urged to consult with an attorney, accountant or other qualified professional concerning your own specific situation and any questions that you may have related to that. No portion of this publication may be reproduced in any form without express written permission from WorldatWork.

3 1 Introduction & Methodology This report summarizes the results of a June survey of WorldatWork members to gather information about current trends in compensation programs and practices. This survey focuses on the prevalence of base and variable pay programs as well as common practices used to administer and communicate these programs in today s workplace. On June 20,, survey invitations were electronically sent to 5,290 WorldatWork members. Members selected for participation were randomly selected members with the word compensation in their titles. The survey closed July 13,, with 1,080 responses, a 20% response rate. The data set was cleaned, resulting in a final data set of 1,001 responses. To provide the most accurate data possible, data was cleaned and analyzed using statistical software. Duplicate records were removed. Data comparisons with any relevant, statistically significant differences are noted within this report. The frequencies or response distributions listed in the report show the number of times or percentage of times a value appears in a data set. Due to rounding, frequencies of data responses provided in this survey may not total 100%. WorldatWork conducted similar compensation practices surveys in 2003 ( Survey of Compensation Policies and Practices ) and in ( Compensation Programs and Practices. ). Where possible, historical comparisons from data gathered in the previous surveys are shown.

4 2 Table of Figures Demographics Figure 1: Sector. 4 Figure 2: Organization size. 4 Figure 3: Industry.. 5 Figure 4: Annual voluntary turnover Compensation Philosophy Figure 5: Compensation philosophy. 8 Figure 6: Employee understanding of the compensation philosophy. 8 Competitive Positioning Figure 7: Labor market comparison.. 9 Figure 8: Relative value of jobs Variable Pay Programs Figure 9: Variable pay prevalence. 10 Figure 10: Types of variable pay plans Figure 11: Variable pay labor market comparison. 11 Determination of Base Salary Increases Figure 12: Base salary increase determinations 11 Pay for Performance Figure 13: Employee rating systems Figure 14: Typical variation in salary increases Figure 15: Increases based on performance, method for determining the actual increase. 13 Figure 16: Number of performance ratings levels/categories.. 14 Figure 17: Employee distribution across performance categories FLSA Classification (U.S.) Figure 18: FLSA requirements exemptions. 15 Figure 19: Portion of U.S. positions/jobs that maintain FLSA exemption status.. 15 Figure 19a: Nonexempt positions/groupings by organization size.. 16 Figure 19b: Exempt positions/groupings by organization size 16 Salary Structure Design and Administration Figure 20: Assessment of the market pricing of jobs. 17 Figure 21: Adjustment of base salary structures for employees.. 17 Figure 22: Multiple salary structures.. 18 Figure 22a: Formal salary structures.. 18 Figure 23: Number of separate structures Figure 24: Separate structures defined/identified 19 Figure 25: Salary grades and/or broad bands Figure 25a: Typical range spread for hourly positions Figure 25b: Typical range spread for salaried positions Figure 25c: Typical range spread for executive positions

5 3 Types of Increases Figure 26: Types of salary increases and/or adjustments awarded. 22 Pay Communication Figure 27: Individual salary information shared with employees. 22 Figure 28: Employee communications about the pay program (last 12 months). 23 Figure 29: Frequency of employee communications about individual pay. 23 Figure 30: Approach to communicating individual pay increases 24 Evaluation of Salary Policies and Practices Figure 31: Salary program effectiveness Global Analysis Figure 32: Responsibility and global regions Figure 33: Compensation philosophy and variations by global regions Figure 34: Administration of variable pay programs and global regions Figure 35: Types of variable pay programs and global regions Figure 36: Performance-management programs consistency by global regions.. 27 Additional Analysis Figures Comparisons by Type of Compensation Philosophy Figure 37: By year. 28 Figure 38: By sector. 29 Figure 39: By understanding of compensation philosophy Comparisons by Level of Compensation Philosophy Understanding Figure 40: By year. 30 Figure 41: By sector. 31 Figure 42: By type of pay information shared with employees. 31 Figure 43: By pay communication approaches. 32 Figure 44: By annual turnover 32 Comparisons by Annual Turnover Figure 45: By base salary practice Figure 46: By total cash target (or goal) Figure 47: By variable pay practice or payout Figure 48: By variation in salary increase for Figure 49: By type of pay information shared with employees Figure 50: By pay communication approaches Comparisons by Sector Figure 51: By determination of base salary increases Figure 52: By formal employee performance rating system prevalence. 37 Figure 53: By variation in salary increases for Figure 54: By types of pay information shared with employees

6 4 Demographics Figure 1: Your organization is: (n=941) Private sector - publicly traded 45% Private sector - privately held Non-profit/Not-for-profit (education/academic Public sector (local, state, federal 16% 15% 23% 0% 10% 20% 30% 40% 50% Figure 2: Please choose the total number of full-time employees (FTEs) your organization employs worldwide: (n=941) Option Percent Less than 100 employees 0% 100 to 499 3% 500 to 999 6% 1,000 to 2,499 13% 2,500 to 4,999 18% 5,000 to 9,999 21% 10,000 to 19,999 15% 20,000 to 39,999 10% 40,000 to 99,999 10% 100,000 or more employees 5%

7 5 Figure 3: Please choose one category that best describes the industry in which your organization operates: (n=940) 1 Option Percent Finance and Insurance 13% All Other Manufacturing 12% Health Care and Social Assistance 10% Utilities, Oil and Gas 8% Consulting, Professional, Scientific and Technical Services 6% Retail Trade 6% Information (includes Publishing, IT Technologies, etc.) 4% Educational Services 4% Computer and Electronic Manufacturing 4% Public Administration 3% Pharmaceuticals 2% Transportation 2% Other Services (except Public Administration) 2% Other 17% Figure 4: What is the approximate annual voluntary turnover for employees? (n=883) Option Percent 0-5% 23% 6-10% 40% 11-15% 19% 16-20% 8% 21-26% 4% 27-40% 3% 41% or more 3% 1 Industries with less than 1% of respondents are not shown in this table.

8 6 Executive Summary Compensation Philosophy Despite the fact that the percentage of organizations having a written compensation philosophy now exceeds two-thirds, the percentage of organizations in which most or all employees understand the philosophy is only 28%, suggesting an ongoing need to employ more effective communications techniques (Figure 6). For those multinational organizations, more than three-quarters (76%) have a common philosophy worldwide (Figure 33). Employers with a written philosophy are statistically more likely to have their employees understand it (Figure 39). Competitive Positioning Most organizations target base pay (86%) and total cash compensation (71%) at the median of the market. However in practice, fewer organizations achieve this objective for either base pay (67%) and total cash compensation (54%). Although only 6% target base pay below median, 19% actually pay below median. With respect to total cash compensation, 5% target pay below median, but a full 20% actually pay below median (Figure 7). It should be noted that a higher percentage of organizations pay above median than is targeted as well, although the differences between practice and targets are much less pronounced. Job Evaluation Methods Market pricing far exceeds all other job evaluation methods in prevalence. 88% of organizations use market pricing to some degree; 50% use market pricing exclusively. The point-factor approach, once the most common method a few decades ago, is far behind at 20% (Figure 8). Variable Pay Prevalence and Practices Variable pay continues to be used at most organizations, with 84% of participants indicating they use this pay practice (Figure 9). More than three-fourths of organizations award bonuses and two-thirds award recognition payments such as spot awards. With regard to incentive plans, a majority of organizations use individual or performance-sharing plans. Profit-sharing plans are used by just 19% of respondents (Figure 10). 47% of organizations with multinational operations say all employees generally participate in the same programs. Some flexibility is provided to countries or regions either to make limited adaptations to corporate programs or to install local programs of nominal cost (Figure 35). Pay for Performance Virtually all organizations (99%) assess employee performance. Although the most common criterion for determining pay increases continues to be based on individual performance against job standards, its use has dropped since. The use of individual performance against management objectives or personal objectives has gained substantially (58%). This trend suggests that performance goals and objectives are being set in a more deliberate and employee-specific manner as opposed to using generic performance objectives that may be found on boiler-plate position descriptions. Position in salary range and the market value of the positions also are factors considered by 56% and 50% of organizations, respectively (Figure 12). Most organizations strive to differentiate increases based on performance, with 70% of respondents indicating that increases for high performers are at least 50% higher than average performers, and a full quarter saying increases for top contributors are at least twice that of average contributors (Figure 14). In terms of the guidance that organizations provide their managers on awarding increases to employees, 31% mandate a particular percentage or range of percentages that managers must award. The remaining organizations may provide guidance but allow managers latitude to determine increases for employees (Figure 15). 85% of multinational respondents indicate that their performance management program is applied worldwide (Figure 34).

9 7 Salary Structure Design and Administration A full 85% of organizations have a formal salary structure(s) (Figure 22a). 59% of organizations review their salary structures on an annual basis; an additional 20% review them on an as needed basis (Figure 20). The use of traditional salary structures has increased, with 86% of organizations indicating their use. Broadbands, which enjoyed a proliferation in the late 1980s and early 1990s, is now used by only 8% of respondents (Figure 25). 65% of salary structures for hourly positions have range spreads of at least 40%, indicating that somewhat more flexibility in potential pay levels for hourly employees is being offered than in the past (Figure 25a). 80% of structures for salaried positions have range spreads between 45% and 75% (Figure 25b). Pay Communications More than one-third (34%) of organizations indicate they share minimal pay-related information to employees. Moreover, the same percentage indicates actively sharing the organization s compensation philosophy with employees. More encouraging is that 46% of participants indicated that they do share specific design elements of company pay programs (e.g., link to performance, who is considered to be part of market data) (Figure 27). Also encouraging is the survey result that nearly 8 in 10 respondents (79%) indicated that supervisors have individual discussions with employees regarding pay programs (Figure 28). In terms of communications methods, brief written or verbal communications are the most prevalent, although these methods are statistically less effective methods than using more detailed pay communications (Figure 30). Not surprisingly, employees are much less likely to understand the organization s compensation philosophy when minimal pay information is shared (Figure 42).

10 8 Results and Analysis Compensation Philosophy See Figures for additional comparisons of findings by compensation philosophy. Figure 5: Does your company have a compensation philosophy for paying employees? Option (n=996) (n=1,381) 2003 We have a written compensation philosophy 67% 2 61% 62% We have an unwritten compensation philosophy 26% 29% 29% We do not have a compensation philosophy 7% 9% 7% Other 1% 1% 2% Figure 6: To what extent do employees understand the company s compensation philosophy? Participants who answered, We do not have a compensation philosophy in Figure 4 did not receive this question. Option (n=921) (n=1,237) 2003 Virtually no employees understand the compensation philosophy 6% 7% 6% Most do not understand the compensation philosophy 38% 35% 32% About half of employees understand the compensation philosophy 28% 29% 28% Most employees understand the compensation philosophy 26% 26% 31% Virtually all employees understand the compensation philosophy 2% 3% 4% 2 A statistically significantly higher number of organizations reported having written compensation philosophies in (67%) compared with (61%).

11 9 Competitive Positioning Figure 7: Compared to the relevant labor market, what is your organization s: The scale for the figure differed from the scale used in. Historical comparisons are not possible. Base salary target (or goal) (n=958) Base salary practice (n=951) Total cash target or goal (n=843) Current total cash practice (n=844) 25th percentile or below Above 25th but below 50th percentile 50th percentile, or median Above 50th but below 75th percentile 75th percentile or above 1% 5% 86% 8% 2% 1% 18% 67% 13% 1% 1% 4% 71% 20% 4% 1% 19% 54% 22% 4% Figure 8: How does your organization determine the relative value of jobs (job evaluation method)? (Please select all that apply.) (n=989) This question is a new addition in. Historical comparisons are not possible. Option Market pricing 88% Ranking 15% Classification 17% Point factor 20% Other method 7% No method in place (exclusive option) 2% Additional Findings: Half of participants (50%) selected only market pricing and no other option listed.

12 10 Variable Pay Programs Figure 9: Does your organization currently use variable pay (not including sales commission plans)? (n=1,347) Yes 80% No 20% (n=989) Yes 84% No 16% 0% 20% 40% 60% 80% 100% Figure 10: Which of the following types of variable pay plans does your organization use for some or all employees? (Please select all that apply.) 3 Participants who answered No in Figure 7 did not receive this question. Individual incentives (other than sales incentives) Recognition (e.g. spot award) (n=1066) (n=820) 67% 59% 60% 66% Bonuses (e.g. sign-on, retention) Performance sharing (based on other financial or nonfinancial goals) 59% 57% 58% 76% Profit sharing 19% 19% 0% 20% 40% 60% 80% 3 A statistically significantly higher number of participants in reported using recognition (66%) and bonus (76%) variable pay plans compared with, while a statistically significantly higher number of participants in reported using individual incentives (67%).

13 11 Figure 11: Compared to the relevant labor market, what is your organization s: 80% 70% 60% 50% Variable pay target (or goal) (n=719) Variable pay practice or payout (n=720) 70% 53% 40% 30% 20% 10% 0% 2% 3% 25th percentile or below 8% 20% Above 25th but below 50th percentile 50th percentile, or median 16% 21% Above 50th but below 75th percentile 4% 3% 75th percentile or above Determination of Base Salary Increases Figure 12: How are base salary increases typically determined for employees? (Please select all that apply.) Option (n=979) (n=1,337) Individual performance against job standards 66% 73% 4 Individual performance against MBOs or similar personal objectives 58% 5 44% Position in range 56% 54% Market value of the position 50% 55% Skill or competency acquisition 20% 25% General increase everyone receives the same increase 12% 11% Years of service 9% 13% Education/certifications 9% 10% Other 4% 4% 4 A statistically significantly higher number of participants cited using individual performance against job standards for base salary increases in (73%) compared with the same method in (66%). 5 A statistically significantly higher number of participants cited using individual performance against MBOs or similar personal objectives in (58%) compared with the same method in (44%).

14 12 Additional Findings: 2% of participants selected only General increase everyone receives the same increase and nothing else out of all answers listed. This is the same percentage as. 92% of participants selected individual performance against job standards and/or MBO. This is an increase from 90% in. 84% of participants selected individual performance against job standards and/or or MBO without selecting the general increase option. This is a decrease from 89% in. Pay for Performance Figure 13: Do you have a formal employee performance rating system, resulting in a performance metric or score? 6 We have a rating system with a performance score that is tied to salary increases (n=1335) (n=979) 65% 71% We have a rating system with a performance score that is not tied to salary increases 20% 17% We assess performance, but do not have a performance score 14% 11% No, we don t assess performance 2% 1% 0% 20% 40% 60% 80% 6 A statistically significantly higher percentage of participants cited having a rating system with a performance score that is tied to salary increases in (71%) compared with (65%).

15 13 Figure 14: If salary increases are based on performance, what is the typical variation in salary increases for? Only participants who answered, We have a rating system with a performance score that is tied to salary increases in Figure 11 received this question. Option (n=679) (n=836) Base salary increase is based on something other than individual performance 2% 1% 1% Everyone receives approximately the same increase 4% 4% 5% Small variation (increase for top performers is 1.25 times the average) 24% 24% 20% Moderate variation (increase for top performers is 1.5 times the average) 45% 43% 43% Considerable variation (increase for top performers is 2 times the average) 23% 25% 28% Extreme variation (increase for top performers is at least 3 times the average) 2% 2% 4% 2003 Figure 15: If your organization allocates annual increases based on performance, indicate the method for determining the actual increase: Only participants who answered We have a rating system with a performance score that is tied to salary increases in Figure 11 received this question. This question is a new addition in. Historical comparisons are not possible. Option A merit matrix (position in range and performance rating) is published that managers MUST follow in which a specific percentage increase is published for each box of the matrix A merit matrix is published that managers MUST follow in which a specific RANGE of increases is published for each box of the matrix A merit matrix is published that managers use as a GUIDE, but they have discretion to deviate if deemed appropriate A specific guide providing one increase percentage or a range of increase percentages for each level of performance (position in salary range is not considered) is published that MUST be followed A specific guide providing one increase percentage or a range of increase percentages for each level of performance (position in salary range is not considered) is published as a GUIDE only (n=677) 12% 11% 51% 8% 10% Other type of guidance is provided 5% No guidance is provided other than the overall budget figure 3%

16 14 Figure 16: How many performance ratings levels/categories are used when assessing individual performance? (Please do not including levels such as "Too New to Rate," "New Hire," etc.) (n=1,126) Only participants who answered We have a rating system with a performance score that is tied to salary increases or We have a rating system with a performance score that is not tied to salary increases in Figure 11 received this question. 60% (n=1126) (n=844) 54% 57% 50% 40% 30% 20% 10% 0% 0% 0% 0% 1% 12% 12% 27% 23% 7% None Two Three Four Five Six or more 7% Figure 17: How were employees distributed across these performance categories for 2011 or last performance period? (n=1,112) Only participants who answered We have a rating system with a performance score that is tied to salary increases or We have a rating system with a performance score that is not tied to salary increases in Figure 11 received this question. (n=1112) (n=839) Most people fell into the middle with a bellshaped distribution around the middle 54% 54% Spread is skewed toward higher performance ratings 39% 41% Spread is skewed toward lower performance ratings Employees are spread approximately evenly across performance ratings Do not track this information 1% 1% 1% 0% 5% 5% 0% 20% 40% 60%

17 15 FLSA Classification (U.S.) Figure 18: What portion of your organization s U.S. positions/jobs is exempt from Fair Labor Standards Act (FLSA) requirements? Only participants who answered We have a rating system with a performance score that is tied to salary increases or We have a rating system with a performance score that is not tied to salary increases in Figure 11 received this question. Answer options in the survey questionnaire were listed in 10% increments. 40% (n=998) (n=709) 36% 38% 32% 32% 30% 26% 27% 20% 10% 0% 4% 3% 1% 1% 0% (None) 10% to 30% 40% to 60% 70% to 90% 100% (All) Figure 19: For what portion of your organization s U.S. positions/jobs do you maintain FLSA exemption status documentation? Only participants who answered We have a rating system with a performance score that is tied to salary increases or We have a rating system with a performance score that is not tied to salary increases in Figure 11 received this question. Answer options in the survey questionnaire were listed in 10% increments and a definition for documentation was not provided in the questionnaire. Exempt positions (n=612) 30% 29% Nonexempt positions (n=611) 28% 30% 25% 20% 21% 16% 16% 14% 10% 11% 10% 0% 0% (None) 10% to 30% 40% to 60% 70% to 90% 100% (All)

18 16 Figure 19a: Portion of nonexempt positions/jobs for which FLSA exemption status testing documentation is maintained, by organization size. Organization Size 0% 10% to 30% 40% to 60% 70% to 90% 100% Less than 100 (n=0) 0% 0% 0% 0% 0% 101 to 999 (n=49) 39% 18% 14% 8% 20% 1000 to 4,999 (n=205) 32% 16% 11% 13% 27% 5,000 to 19,999 (n=211) 31% 13% 9% 17% 31% 20,000 and above (n=138) 20% 20% 11% 15% 34% Figure 19b: Portion of exempt positions/jobs for which FLSA exemption status testing documentation is maintained, by organization size. Organization Size 0% 10% to 30% 40% to 60% 70% to 90% 100% Less than 100 (n=1) 100% 0% 0% 0% 0% 101 to 999 (n=51) 28% 28% 16% 14% 16% 1000 to 4,999 (n=197) 26% 20% 13% 14% 27% 5,000 to 19,999 (n=220) 27% 19% 9% 18% 28% 20,000 and above (n=135) 19% 22% 11% 17% 32%

19 17 Salary Structure Design and Administration Figure 20: How often do you assess the market pricing of jobs (i.e., pricing benchmarks or all jobs with salary survey data)? Multiple times per year 7% 6% (n=1315) (n=956) Once a year 55% 59% Once every two years Less than once every two years Never As needed based on market conditions 13% 11% 5% 4% 1% 0% 19% 20% 0% 20% 40% 60% Figure 21: How often do you typically adjust base salary structures for employees? Not consistently adjusted OR as needed based on market conditions (n=1280) 30% 31% (n=929) Less than once every two years Once every two years 3% 4% 9% 9% Once a year 58% 55% Multiple times per year 0% 0% 0% 20% 40% 60%

20 18 Figure 22: Does your organization have more than one salary structure? (n=1285) Yes 59% No 41% (n=940) Yes 72% No 28% 0% 20% 40% 60% 80% 100% Figure 22a: Does your organization use a formal salary structure(s)? This question is a new addition in. Historical comparisons are not possible. Yes 85% No 15%

21 19 Figure 23: How many separate structures are in place? Only participants who answered Yes in Figure 22a received this question. (n=751) 2 25% 3 21% 4 12% 5 or more 42% (n=626) 2 18% 3 18% 4 13% 5 or more 51% 0% 20% 40% 60% 80% 100% Figure 24: How are the separate structures defined/identified? (Please select all that apply.) Only participants who answered Yes in Figure 22a received this question. Option (n=627) (n=836) By geographic region 52% 45% By FLSA exemption status or other regulatory classification 33% 35% By business unit/subsidiary 31% 25% By job category/roll/type/function 23% 32% 7 By bargaining unit/union affiliation 5% 7% Other 4% 4% 7 A statistically significantly higher number of participants in defined separate structures by job category, roll, type or function (32%) compared with (23%).

22 20 Figure 25: Does your salary structure(s) consist of salary grades or broadbands? Only participants who answered Yes in Figure 22a received this question. 90% 86% (n=1284) (n=628) 80% 70% 73% 60% 50% 40% 30% 20% 10% 14% 13% 8% 6% 0% Salary grades Broadbanding approach Other Figure 25a: For hourly positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)? (n=609) Only participants who answered Salary grades in Figure 25 received this question. This question was asked in only. There is no history on this specific data. 50% 40% 41% 30% 24% 20% 10% 3% 8% 12% 11% 0% Less than 10% 10% to less than 20% 20% to less than 30% 30% to less than 40% 40% to less than 50% 50% or more

23 21 Figure 25b: For salaried (except executive) positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)? (n=645) Only participants who answered Salary grades in Figure 25 received this question. This question was asked in only. There is no history on this specific data. 30% 30% 25% 20% 15% 10% 4% 7% 9% 11% 0% Less than 25% 25% to less than 35% 35% to less than 45% 45% to less than 55% 55% to less than 65% 65% to less than 75% 75% or more Figure 25c: For executive positions, what is the typical range spread [(maximum/minimum) -1] of ranges in your structure(s)? (n=561) Only participants who answered Salary grades in Figure 25 received this question. This question was asked in only. There is no history on this specific data. 20% 19% 18% 19% 19% 10% 7% 7% 10% 0% Less than 35% 35% to less than 45% 45% to less than 55% 55% to less than 65% 65% to less than 75% 75% to less than 85% 85% or more

24 22 Types of Increases Figure 26: What types of salary increases and/or adjustments does your organization award to some or all employees? (Please select all that apply.) Option (n=946) (n=1,306) Promotional increases (result of higher/greater level of responsibility) 97% 94% Merit increases 94% 92% Market adjustments 77% 76% Internal equity adjustments 69% 64% Pay differentials (usually related to atypical schedule, hazardous or unsecure work environment, special skill set or responsibilities, etc.) 49% 42% Temporary special assignment pay 39% 36% General across-the-board increases not considered COLA or market adjustments 13% 12% Cost-of-living adjustments (COLAs) 12% 11% Other 4% 4% Pay Communication Figure 27: How much information about the pay program is shared with employees about their individual salaries? (Please select all that apply.) Option (n=940) (n=1,300) Information regarding the design of the pay program (e.g., strategy, compensation markets, link to performance, etc.) 46% 49% Base salary range for the employee s pay grade 44% 43% The organization's compensation philosophy 34% 52% Minimal pay-related information is shared 34% 32% Base salary ranges for all pay grades or jobs 18% 19% Actual pay levels for all employees 2% 1% Other 5% 4%

25 23 Figure 28: In the past 12 months, how did employees receive communications about the pay program? (Please select all that apply.) Option (n=940) (n=1,299) Individual discussions with their supervisor 79% 8 73% Information is posted on a company website 41% 42% Memos, s 37% 41% Individual discussions with human resources/compensation department 29% 30% Employee meetings 23% 27% Employee handbook or orientation manual 20% 21% No pay communications 7% 7% Other 7% 6% Figure 29: How often did employees receive communications about their individual pay in the past 12 months? Participants who answered No pay communications in Figure 28 did not receive this question. 80% 76% 79% n=1297 (n=872) 70% 60% 50% 40% 30% 20% 10% 0% 6% 5% Never At least once 12% 12% 3% 3% 1% 0% 2% 2% Twice 3 times 4 times 5 times or more 8 A statistically significantly higher number of participants in cited using individual discussions with their supervisor to communicate pay programs to employees (79%) compared with (73%).

26 24 Figure 30: The approach to communicating individual pay increases is: (Please select all that apply.) (n=871) (n=871) Brief written communication Brief verbal communication 54% 54% 49% 51% Detailed verbal communication Detailed written communication 24% 25% 22% 25% We never communicate pay information 2% 1% 0% 20% 40% 60% Evaluation of Salary Policies and Practices Figure 31: How does management determine if the salary program is effective? (Please select all that apply.) Option (n=922) (n=1,258) Employee turnover or retention 63% 59% Employee satisfaction survey metrics 50% 46% Business/operating results 29% 32% Senior leadership tells us that it is working 21% 21% Management does not evaluate salary program effectiveness 20% 22% Employees tell us that it is working 19% 18% Employee productivity metrics 16% 17% Labor cost is controlled/lowered 15% 15% Other 4% 3%

27 25 Global Analysis The following questions were included in the fielding of this survey only. No historical data is available. Figure 32: For which regions of the world do you have responsibility? (Check all that apply.) (n=1001) United States/Canada 99% Asia-Pacific 22% Western Europe 21% Latin America 19% Eastern Europe 14% Middle East 12% Africa 10% 0% 20% 40% 60% 80% 100% Figure 33: If you have a compensation philosophy, is it universal companywide or does it vary by country? (n=223) Only survey participants selecting more than one country in Figure 32 received this question. Universal companywide 76% Varies by country 24%

28 26 Figure 34: If you have employees in multiple countries, how are your variable pay programs designed and administered? (n=235) Only survey participants selecting more than one country in Figure 32 received this question. Option Variable pay programs are designed primarily at the corporate level, and all employees generally participate in the same programs with flexibility for local countries to make limited adaptations or implement unique programs of nominal cost 47% Variable pay programs are designed exclusively at the corporate level, and all employees worldwide participate in the same programs Variable pay programs are designed with significant input from local HR and/or line management. One or a few core variable pay programs exist companywide, however different countries have significant latitude to implement additional local programs based on local practice and competitive factors Variable pay programs are designed and administered primarily at the local level to ensure they are meeting the unique needs of local employees 33% 17% 3% Figure 35: Which of the following types of variable pay plans does your organization use for some or all employees based on the regions you are responsible for? (Please select all that apply.) Only survey participants selecting more than one country in Figure 32 received this question. Profit sharing Performance sharing (based on other financial or nonfinancial goals) Individual incentives (other than sales incentives) Bonuses (e.g., sign-on, retention) Recognition (e.g., spot award) United States/Canada 24% 57% 61% 76% 75% Africa 14% 54% 55% 67% 71% Asia-Pacific 13% 51% 59% 65% 66% Eastern Europe 14% 60% 54% 64% 67% Western Europe 15% 54% 58% 65% 69% Middle East 16% 51% 58% 71% 70% Latin America 20% 53% 58% 61% 62%

29 27 Figure 36: Is your performance management program applied consistently to all countries? Only survey participants selecting more than one country in Figure 32 received this question. Yes 85% No 15%

30 28 Additional Analysis Comparisons by Type of Compensation Philosophy This section provides a detailed analysis of an organization s compensation philosophy status: Written compensation philosophy Unwritten compensation philosophy None/other compensation philosophy This summary is intended to provide an overview of how organizations with a written compensation philosophy may differ from organizations with an unwritten compensation philosophy 9. Figure 37: By year 10 70% 60% 61% 67% n=1381 n=996 50% 40% 30% 29% 26% 20% 10% 10% 8% 0% Written compensation philosophy Unwritten compensation philosophy None/other compensation philosophy Legend (n=996): 9 Selected statistically significant differences are noted. 10 In a statistically significantly higher percentage of organizations have a written compensation philosophy (67%) compared with (61%).

31 29 Written compensation philosophy 67% Unwritten compensation philosophy 26% None/other compensation philosophy 8% Figure 38: By sector Written Unwritten None/other Public sector (n=143) 62% 28% 10% Private sector (n=640) 65% 27% 8% Nonprofit/Not-for-profit (n=153) 11 76% 18% 5% Figure 39: By understanding of compensation philosophy Written Unwritten None/other Most or all employees understand the compensation philosophy 12 89% (n=406) About half of employees understand the compensation philosophy (n=262) Virtually all or most employees DO NOT understand the compensation philosophy (n=253) 11% 0% 77% 22% 0% 57% 41% 1% Comparisons by Level of Compensation Philosophy Understanding 11 Nonprofit/not-for-profit sectors are significantly more likely to have a written compensation philosophy (76%) than the public sector (62%) and the private sector (65%). 12 Where most, all or half of the employees understand the organizations compensation philosophy, these organizations are statistically significantly more likely to have a written compensation philosophy.

32 30 The following section provides a detailed analysis of employee understanding of organizations compensation philosophies: Virtually all or most employees do not understand the compensation philosophy About half of employees understand the compensation philosophy Most or all employees understand the compensation philosophy. This summary is intended to provide an overview of how an organization s compensation philosophy may vary with an employee s understanding of the compensation philosophy. Figure 40: By year: (n=1237) (n=921) Virtually none or most employees DO NOT understand the compensation philosophy 42% 44% Most or all employees understand the compensation philosophy 30% 28% About half of employees understand the compensation philosophy 29% 27% 0% 20% 40% 60% Legend (n=921):

33 31 Most or all employees understand the compensation philosophy 27% About half of employees understand the compensation philosophy 28% Virtually all or most employees DO NOT understand the compensation philosophy 44% Figure 41: By sector: Most/All Half Few/None Public sector (n=131) 27% 27% 45% Private sector (n=592) 28% 28% 44% Nonprofit/Not-for-profit (n=146) 25% 34% 41% Figure 42: By type of pay information shared with employees: Most/All Half Few/None Minimal pay-related information is shared (n=273) 13% 18% 68% 13 Information regarding the design of the pay program is shared (e.g., strategy, compensation markets, link to performance, etc.) (n=414) Base salary range for the employee's pay grade is shared (n=397) Base salary ranges for all pay grades or jobs are shared (n=158) 38% 35% 27% 32% 35% 33% 37% 30% 32% Actual pay levels for all employees are shared 14 (n=17) 24% 18% 59% The organization's compensation philosophy is shared (n=319) 40% 34% 25% 13 Organizations where minimal pay information is shared reported at statistically significantly higher rates that employees within the organization did not understand the compensation philosophy (68%) compared with organizations that share the design of the pay program (27%), the base salary range for the employees pay grade (33%), base salary ranges for all pay grades or jobs (32%), and the organization s compensation philosophy (25%). 14 Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity.

34 32 Legend (n=921): Most or all employees understand the compensation philosophy 27% About half of employees understand the compensation philosophy 28% Virtually all or most employees DO NOT understand the compensation philosophy 44% Figure 43: By pay communication approaches: Most/All Half Few/None We never communicate pay information (n=3) 15 0% 33% 67% Brief written communication (n=447) 27% 28% 45% 16 Detailed written communication (n=208) 38% 31% 31% Brief verbal communication (n=417) 24% 32% 44% Detailed verbal communication (n=212) 40% 17 29% 31% Figure 44: By annual turnover: Most/All Half Few/None 0%-5% (n=198) 35% 18 26% 38% 6%-10% (n=325) 31% 30% 39% 11%-15% (n=159) 21% 26% 54% 16% + (n=136) 16% 32% 52% 15 Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity. 16 Organizations that reported communicating with brief written communication (45%) were statistically significantly more likely to report that virtually all or most employees do not understand the organization s compensation philosophy over organizations providing detailed written communication (31%) and detailed verbal communications (31%). 17 Organizations that reported communicating pay information through detailed verbal communication were statistically significantly more likely to report that most or all employees understand the organization s compensation philosophy (40%) over organizations providing brief verbal communications (24%). 18 Organizations where most or all employees understand the compensation philosophy were statistically significantly more likely to report a voluntary turnover rate (VTO) between 0%-5% (35%) compared with a VTO of 11%-15% (21%) or 16%+ (16%).

35 33 Comparisons by Annual Turnover The following section provides a detailed analysis of the approximate annual turnover for employees: 0% - 5% 6%-10% 11%-15% 16%+ This summary is intended to provide an overview of how pay practices may differ by annual turnover. Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17% Figure 45: By base salary practice: 0% - 5% 6% - 10% 11% - 15% 16+% Less than 25th percentile 14 (n=11) 0% 46% 27% 27% Above 25th but below 50th percentile (n=143) 11% 37% 26% 26% 50th percentile, or median (n=573) 24% 40% 18% 17% Above 50th but below 75th percentile (n=112) 31% 43% 15% 11% 75th percentile or above 14 (n=10) 40% 30% 30% 0% Figure 46: By current total cash practice 0% - 5% 6% - 10% 11% - 15% 16+% Less than 25th percentile 14 (n=7) 0% 57% 14% 29% Above 25th but below 50th percentile (n=139) 15% 39% 22% 24% 50th percentile, or median (n=410) 24% 40% 17% 20% Above 50th but below 75th percentile (n=164) 27% 38% 21% 13% 75th percentile or above 14 (n=29) 28% 45% 17% 10%

36 34 Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17% Figure 47: By variable pay practice or payout 0% - 5% 6% - 10% 11% - 15% 16+% Less than 25th percentile (n=20) 15% 50% 5% 30% Above 25th but below 50th percentile (n=134) 22% 35% 20% 22% 50th percentile, or median (n=342) 24% 38% 18% 20% Above 50th but below 75th percentile (n=134) 22% 47% 17% 14% 75th percentile or above 15 (n=20) 30% 55% 10% 5% Figure 48: By variation in salary increase for : Base salary increase is based on something other than individual performance 16 (n=8) Everyone receives approximately the same increase 16 (n=29) Small variation (increase for top performers is 1.25 times the average) (n=153) Moderate variation (increase for top performers is 1.5 times the average) (n=281) Considerable variation (increase for top performers is 2 times the average) (n=134) Extreme variation (increase for top performers is at least 3 times the average) 16 (n=10) 0% - 5% 6% - 10% 11% - 15% 16+% 25% 50% 25% 0% 28% 31% 21% 21% 23% 39% 19% 19% 24% 37% 19% 19% 27% 43% 19% 12% 10% 50% 20% 20%

37 35 Legend (n=883): 0% - 5% 23% 6%-10% 40% 11%-15% 20% 16%+ 17% Figure 49: By type of pay information shared with employees: 0% - 5% 6% - 10% 11% - 15% 16+% Minimal pay related information is shared (n=296) 14% 34% 27% 25% Information regarding the design of the pay program is shared (e.g., strategy, compensation markets, link to 25% 46% 19 17% 13% performance, etc.) (n=408) Base salary range for the employee s pay grade is shared (n=381) 29% 20 44% 15% 12% Base salary ranges for all pay grades or jobs are shared (n=161) 36% 21 39% 18% 8% Actual pay levels for all employees are shared 17 (n=18) 33% 22% 28% 17% The organization's compensation philosophy is shared (n=296) 25% 45% 16% 14% Figure 50: By pay communication approaches: 0% - 5% 6% - 10% 11% - 15% 16+% We never communicate pay information 22 (n=5) 20% 40% 20% 20% Brief written communication (n=445) 23% 40% 21% 16% Detailed written communication (n=207) 28% 42% 17% 13% Brief verbal communication (n=415) 21% 40% 21% 18% Detailed verbal communication (n=204) 28% 37% 17% 17% 19 Organizations sharing Information regarding the design of the pay program have statistically significantly higher percentages of employee voluntary turnover between 0% - 5% (46%) compared with organizations where minimal pay related information is shared (14%). 20 Organizations sharing base salary range for the employee s pay grade have statistically significantly higher percentages of employee voluntary turnover between 0% - 5% (29%) compared with organizations where minimal pay related information is shared (14%). 21 Organizations sharing base salary ranges for all pay grades or jobs have statistically significantly higher percentages of employee voluntary turnover between 0% - 5% (36%) compared with organizations where minimal pay related information is shared (14%). 22 Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity.

38 36 Comparisons by Sector The following section provides a detailed analysis of the organization type: Public sector Private sector Nonprofit/Not-for-profit This summary is intended to provide an overview of how an organization s compensation philosophy may vary by sector. Legend (n=941): Public sector 15% Private sector 68% Nonprofit/ Not-for-profit 16% Figure 51: By determination of base salary increases: Public Private Nonprofit Individual performance against job standards (n=618) 15% 68% 23 17% Individual performance against MBOs or similar personal objectives (n=535) 14% 75% 24 11% Skill or competency acquisition (n=186) 15% 70% 25 15% Years of service (n=87) 23% 49% 28% Position in range (n=524) 13% 74% 26 12% Education/certifications (n=82) 18% 59% 23% Market value of the position (n=471) 14% 70% 27 15% General increase everyone receives the same increase (n=109) 27% 39% 35% 23 Private-sector organizations are statistically significantly more likely to determine base salary increases from individual performance against job standards (68%) compared with years of service (49%) or a general increase (39%). 24 Private-sector organizations are statistically significantly more likely to determine base salary increases from individual performance against MBOs or similar personal objectives (75%) compared with years of service (49%), education or certifications (59%) or a general increase (39%). 25 Private-sector organizations are statistically significantly more likely to determine base salary increases from skill or competency acquisition (70%) compared with years of service (49%) or a general increase (39%). 26 Private-sector organizations are statistically significantly more likely to determine base salary increases from position in range (74%) compared with years of service (49%), education or certifications (59%) or a general increase (39%). 27 Private-sector organizations are statistically significantly more likely to determine base salary increases from the market value of the position (70%) compared with years of service (49%) or a general increase (39%).

39 37 Legend (n=941): Public sector 15% Private sector 68% Nonprofit/ Not-for-profit 16% Figure 52: By formal employee performance rating system prevalence: Public Private Nonprofit We have a rating system with a performance score that is tied to salary increases (n=663) 14% 71% 28 15% We have a rating system with a performance score that is not tied to salary increases (n=160) 18% 64% 18% We assess performance, but we do not have a performance score (n=105) 21% 57% 22% No, we don t assess performance 19 (n=12) 8% 67% 25% Figure 53: By variation in salary increases for : Public Private Nonprofit Base salary increase is based on something other than individual performance 29 (n=10) 40% 50% 10% Everyone receives approximately the same increase 19 (n=30) 37% 43% 20% Small variation (increase for top performers is 1.25 times the average)(n=160) 16% 60% 24% Moderate variation (increase for top performers is 1.5 times the average)(n=301) 10% 76% 14% Considerable variation (increase for top performers is 2 times the average)(n=145) 11% 82% 30 7% Extreme variation (increase for top performers is at least 3 times the average) 19 (n=11) 9% 73% 18% 28 Private-sector organizations are statistically significantly more likely to have a rating system with a performance score that is tied to salary increases (71%) over organizations that assess performance, but do not have a performance score (57%). 29 Count for group is less than 30; data corresponding to larger sample sizes will have stronger statistical power and validity. 30 Private-sector organizations are statistically significantly more likely to have considerable variation in typical salary increases (82%) compared with all employees receiving approximately the same increase (43%).

40 38 Figure 54: By types of pay information shared with employees: Public Private Nonprofit Minimal pay-related information is shared (n=314) 13% 76% 11% Information regarding the design of the pay program is shared (e.g., strategy, compensation markets, link to performance, etc.) 13% 70% 18% (n=429) Base salary range for the employee s pay grade is shared (n=409) 15% 65% 20% Base salary ranges for all pay grades or jobs are shared (n=171) 30% 42% 28% Actual pay levels for all employees are shared 19 (n=18) 39% 50% 11% The organization's compensation philosophy is shared (n=322) 14% 65% 21%