New Approaches To Retain Talent Beyond Financial Compensation Alone

We continue to stand at a crossroads in the world of work. As a result of the past two years of adapting and evolving, organizations globally have charted new business and talent strategies, and this has had a significant impact on the direction of reward programs. During this time, Korn Ferry has gathered insights into how organizations are adapting their reward programs in response to a rapidly changing world.

Amid a continuing global talent shortage, new Korn Ferry rewards research indicates leaders are using a number of tools—financial and non-financial—in winning the talent war. Our research initiative was conducted in mid-January 2022 and generated more than 5,000 responses from organizations in 116 countries across 24 industry segments.

We found that organization leaders are seeking ways to establish more and deeper connections with their workers and provide them with more opportunities for growth and development. Some of the key non-financial reward areas where we see organizations focusing on today—and much more than a year ago include:

• 40% of survey participants said they are investing more to improve manager and leader effectiveness in building employee connections and organization inclusion.

• 36% are engaging more with employees around significant organizational change priorities.

• 31% are providing more clarity and communication about employee growth and career development opportunities.

• 30% are increasing their effort to connect the work that employees do to the organization’s mission, vision and values.

In terms of compensation focus areas, survey respondents said they are using the following tools even more than they did before the pandemic:

• Special incentives/bonuses outside of regular bonus programs (20%)

• Retention bonuses (18%)

• Sign-on bonuses and increased use of internal referral bonuses (18%)

• Environmental, Social & Governance (ESG) and Corporate Social Responsibility (CSR) metrics in their executive incentive programs (17%)

Our research also indicated some significant differences in the level of investment in the base salary program anticipated for 2022. We were prompted to initiate this survey when it became increasingly clear from our clients toward the latter part of 2021 that early compensation increase projections for 2022 may no longer be relevant.

Given the continued impact of the pandemic on business conditions, accelerating inflation, and labor supply and demand imbalances, many organizations felt compelled to adjust their compensation increase budgets in the latter part of 2021 and early 2022. The survey findings indicate that organizations globally are in the process of making, or are considering, significant changes in their salary increase budgets for 2022.

Most organizations globally are reporting an uptick in their median total salary increase budgets for 2022 vs what they had planned in 2021. For example, U.S. median base salary increases have risen from 3.0% (over the summer) to 3.5% (as of now).  Over this same period, the U.K. has gone from 2.5% to 3.0%, Australia from 2.4% to 3.0%, Brazil from 6.1% to 7.4%, Turkey from 18% to 30% and Russia from 5% to 7.5%.

When it comes to compensation increase budgets, not all roles are created equal. Several hot skills areas were cited as having salary increase budgets managed separately from the rest of the organizations. These roles often include analytics & data science, engineering, IT and sales.

Organizations should also take care in interpreting this forecast data as there is a significant variance in company practices regarding the types of pay increases that are included in these projections. Organizations are generally split between those who include vs. exclude promotions, internal equity adjustments, market adjustments, key contributor increases and other off-cycle increases in these projections. As a result, forecasted increases are likely understated to actual total increase practices by as much as 25-33% of the overall budget. Organizations should use this and other salary increase projection information directionally and engage in a discussion focused on internal needs and objectives vs. over-indexing on external market data.

A majority of organizations are also granting a significant percentage of their employees a salary increase this year (i.e., at least 90% of employees will receive an increase). This high rate of employees receiving increases results in the typical organization not being able to significantly differentiate increases between competent and outstanding performers. The typical practice is a 1.5X difference in increase percentages between these performers (e.g, an outstanding performer receives a 4.5% increase vs. a competent performer receiving 3.0%).

While a majority of organizations are reporting little change in their base salary administration processes vs. pre-pandemic, there is a higher percentage of organizations utilizing more centralized review, calibration, and control processes of their compensation. All of this suggests the increased impact and role reward is playing in the current environment.