Reward Event – Aon Hewitt’s Annual Review of the Market

This week we held our annual review of the Reward market with Jairus Ashworth from Aon Hewitt. Drawing on recent research studies across total rewards, people performance and human capital Jairus provided the exclusive group of 40 reward professionals with a unique insight into what took place in the world of employee rewards in 2016 and what they should be gearing up for in 2017 and beyond.

What is evident from research (and the consensus around the room) is that pay levels and market sentiment are very much on a plateau with few organisations predicting any significant growth in total pay with their business in the next few years.

Interestingly there seems to be a shift in how organisations are approaching reward, with a 20 year period of convergence and standardization appearing to be coming to an end, and more divergent and company specific approaches gaining traction. This is impacting all areas of performance and reward, including incentives, benefits, executive compensation and performance management.

Companies are questioning whether their approach to performance pay is achieving the desired outcomes and either pulling back, significantly reworking or indeed doubling down on their approach. This has in many cases been a result of changes to how performance is managed, and the perceived conflict between ongoing, frequent feedback and development focused conversations, and the traditional annual performance review and salary increase/bonus allocation underpinned by a performance rating.

Using the latest research from Aon’s extensive databases, Jairus covered how salaries and incentives have moved in different industries. Given the overall sluggish growth in the last year with pay increases remaining around the 3% zone; it was unsurprising to learn that the lowest movement was in the Mining and Resources industry, compared with Finance and Insurance which despite being the highest, was still at a modest median point of just over 3%.

In terms of specific job family movements, points of note around median fixed remuneration payments included an impressive 5.9% increase for Online, 4% increase for Graduates and 4% for Marketing, compared with a lower rate of 2.5% for corporate services and information technology.

The economic indicators which predict salary movements are contradictory – economic growth is strong, and unemployment is at historically reasonably low levels, which are predictors of higher moves, but CPI and wages growth are at extremely low levels, which suggest low pay increases will continue.

Top Tip – Jairus’ favourite work related website is www.tradingeconomics.com which gives up to date information on economic indicators from all economies around the world.

Aon Hewitt’s data around the Gender Pay Gap showed that there are still significant differences in overall gender pay rates across all industries (between 15% and 60%). However this headline number is driven by two main factors; participation rates across different professions and levels of seniority, and pay differences between the genders when comparing jobs on a like for like basis. A large part of the gap is driven by participation; males have higher participation in senior roles and job types that have higher rates of pay. This accounts for two thirds of the pay difference and can only be addressed by long term changes in training, recruitment and indeed social norms. When we look at the component which is directly impacted by reward strategies, the rates of pay for work of a similar nature, there is still a gap of 5-8% which can and should be immediately addressable through strategies such as ignoring previous salaries when hiring and not basing incentives payments on previous awards.

The assembled group of reward specialists reflected on changes in the Financial services sector and how these are indeed changing the landscape of incentives. We only need to look at the Wells Fargo investigation in the US to reflect on the impact. Closer to home, Westpac recently announced they would be pulling back volume based frontline sales and moving to customer satisfaction based measures for incentives. With compliance costs becoming more and more astronomical, there is a growing business case for investment in culture and employee engagement to reduce these very meaningful costs of doing business.

Jairus shared a brief case study on how Aon is using predictive human capital analytics within their business to drive performance and invest in engagement and connectivity.

In closing, Jairus quizzed attendees about global salary increases for 2017, sharing the countries in each region around the world with the highest and lowest increases – from 1.7% in Greece to 99.3% in Venezuela. Unfortunately nobody was able to identify the highest forecast growth rate in Europe – Ukraine at 10.4% which meant Jairus got to keep his bottle of wine!

For more information, contact Aon Hewitt

For more information on our ‘Ask the expert’ events, please email Fiona@peoplecorp.com.au