One of the common questions I hear from clients centers on how well their people practices and budgets compare to industry benchmarks and groups of top-performers. With ever-changing trends and shrinking competitive advantage, it can be helpful to know what others are doing, and how your own company stacks up against them.
Research from the firm PayScale may help to answer at least some of those questions, with their annual analysis of compensation trends and activity. Of particular interest, they compared the practices of average performing companies to top-performing companies, where the latter are defined as those who rank highly within their industry and exceeded revenue projections in 2015.
It turns out that high performers are more likely to provide pay increases (90% compared to 84%), bonuses (81% compared to 74%), and are also likely to leverage more of a compensation mix. High performers are also more likely to adopt a mindset in which people are valued and engage in more transparent communication around compensation.
At first glance, companies that want to achieve better performance may be well advised to adopt some of these practices, and start distributing more increases and bonuses as well as explain the reasons for those investments. Yet, the question of causal directionality is an important one, as addressed in a similar commentary elsewhere.
Do these practices lead to greater performance or does performance enable companies to make these kinds of investments?
That can be a difficult question to answer with a single survey, especially given the circular influences that practices and performance have over time. I am reminded, however, of a meta-analysis examining HRM practices that may provide some insight. The research found that motivation-enhancing HR practices- which includes “competitive compensation, incentives, and rewards” - exhibit a direct effect on financial outcomes, as well as indirect effects through employee motivation and enhanced human capital.
To come full circle, there appears to be some evidence that a set of compensation practices can relate to increased performance, and it is good for clients to be aware of those as possible benchmarks. But, I think it is also important to think in terms of broad, rather than specific practices. We may be better served by looking at practices that have the ability to enhance motivation instead of just doling out raises, for example. Specific practices may also work a little differently across contexts, with each company developing a unique definition of compensation transparency vis-à-vis the local culture.
As we look at these potential benchmarks, it is becoming increasingly clear that companies that perform well tend to check the box on a number of different best practices that overlap to some degree. The shared foundation of many - like the results around increases, bonuses, and salaries mentioned above - tend to be rooted in employees’ perceptions of their value in the workplace. That’s probably a good place to start.
How do you think about the best practices that companies should be adopting?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.
The differences between the percentages between high and low performers are not that great. Are they statistically significant?
Posted by: Harold | 04/18/2016 at 12:55 PM