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Why 2021 is the Year for Compensation Strategy: PayScale’s Best Practices Report Shows the Latest Trends in Compensation

  • 82% of organizations gave base pay increases in 2019 but only 64% gave them in 2020, setting what will be a catastrophic trend for income inequality in 2021 if continued.
  • Over half of organizations admit to not having a compensation strategy; two-thirds say that compensation strategy is important this year but only 30% are ready for change.
  • Given that 80% of organizations set pay to engage and retain employees, workers have more bargaining power to push on compensation, even in a recession.

PayScale, Inc., the leader in modern compensation data and software, today released the results of its annual survey, the 2021 Compensation Best Practices Report, which is the largest survey of its kind examining the trends and attitudes of employers on topics such as COVID-19, pay raises, compensation strategy, pay equity, and pay transparency. The topline finding from the report reveals most organizations realize they need to create a compensation strategy but don’t know where or how to start.

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There is a noticeable uptick in the number of organizations who either say they have a compensation strategy (45%) or are working on one (31%), up 6% from previous years. In addition, nearly two-thirds of organizations (65%) say that compensation strategy is important in the next 12-18 months but less than a third (30%) are ready to change.

“PayScale’s Compensation Best Practices Survey reveals 2021 is the year compensation strategy will make or break businesses,” said Shelly Holt, chief people officer of PayScale. “Employers need to address top challenges like workplace safety, flexibility, diversity, equity, inclusion and total rewards. Smart companies will invest in salary data and compensation software to make strategic business decisions and operate in a way that best serves the business and employees.”

Compensation is a traditional practice for many organizations but suffered shocks in 2020 because of COVID-19 and the ensuing recession. Although a little less than half of organizations (45%) experienced a negative impact to revenue as a result of the pandemic, between one fifth and one third of organizations enacted pay changes of some kind, including pay cuts, pay freezes and hazard pay. This is unusual during an economic downturn, as employers are typically more inclined to lay off workers than change compensation because it risks lowering morale and reducing engagement. In addition, only 64% of organizations gave base pay increases in 2020, a decrease of nearly 20% from previous years. This trend is looking to continue into 2021.

To implement smart compensation strategy, employers require access to trustworthy, reliable, and fresh salary market data. In addition, analytical tools and agility are critical elements needed to extract insights and create data models to support strategic business decisions. As the leading provider of compensation data and technology, PayScale provides thousands of organizations of all sizes and industries with an Adaptive Compensation Advantage.

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The 2021 Compensation Best Practices Report analyzed responses from over 5,000 employers representing industries across the United States. Additional highlights include:

  • COVID-19 affected a minority of organizations negatively. Just short of 45% of organizations saw a negative impact to revenue, while 25% saw a positive impact. Pay changes (cuts, freezes, deferments, temporary increases) were enacted by less than a third of organizations.
  • Compensation strategy is on the rise, but employers are undecided on remote work. Over 75% of organizations say they either have a compensation strategy or are working on one, but a majority (56%) do not have a strategy yet. In addition, less than 12% of organizations have a strategy for remote work and 50% do not think remote work will impact their talent strategy.
  • Paid sources for salary market data are growing in importance. More employers (77%) are using either traditional surveys or paid online market data sources to inform their salary setting, an increase of almost 8% compared to last year and an increase of 24% since 2017.
  • Pay equity is growing in importance. Over 65% of organizations say that pay equity is important to their organization and 46% say they will conduct pay equity analysis in 2021, which is an increase of 8% over last year.
  • Employers are less transparent about pay than they want to be. Most organizations (54.6%) want to be able to share pay ranges with employees to help them understand how to grow into their position; however, only a third share pay ranges currently.

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