Many of today’s pay programs and practices are changing as formalized compensation programs that include written philosophies, salary structures and active performance management are becoming more popular even among small employers since 2003, according to Compensation Programs and Practices 2012, a new study by WorldatWork.

“For a vast majority of organizations, employee compensation is one of the largest operational expenses and the most difficult to manage,” says Kerry Chou, a Certified Compensation Professional and practice leader at WorldatWork. “We expect to see more compensation professionals applying discipline and rigor to the design and management of pay programs to ensure business objectives are met.”  

Just two years ago, 61 percent of respondents had formal, written compensation philosophies to support company culture while 67 percent of respondents have this type of policy in 2012. Another 85 percent of respondents reporting following formal salary structures with salary grade structures being the most common. Broadbands, which were prevalent in the 1980s and 1990s, have fallen, and only 8 percent of respondents say they use them. 

While 99 percent of respondents say they assess employee performance, 71 percent of respondents say they rely on formal employee performance rating systems. Three out of five respondents say they look at individual performance against management objectives or personal objectives, suggesting that performance goals and objectives are deliberately determined in an employee-specific way rather than using generic performance objectives found on boilerplate jobs descriptions.

Among multinational respondents, 85 percent say their performance management programs are applied globally. Approximately 80 percent of respondents say they communicate compensation to employees via brief written or verbal communications at a minimum of once a year, and nearly eight in 10 respondents say employees and supervisors participate in individual discussions regarding pay programs.

To measure the relative value of jobs, respondents report using market pricing, ranking, classification and point factor. Of those, market pricing is the most common as nine out of 10 respondents say they use market pricing in some capacity, and 50 percent of respondents say they only use it. In previous decades, the point-factor approach was the most common method, but it is now only used by 20 percent of respondents. Variable pay is also popular as 84 percent of respondents report using it as opposed to 80 percent in 2010.