Pay Programs: The Mystery Continues

It happens all the time: An employee receives an offer from another firm. His manager, after consulting the finance department, comes back with a counteroffer. It all seems straightforward. It’s not.

According to Korn Ferry's latest Global Total Rewards Pay Survey, only 45% of firms have formal plans in place for retention offers—even though making them is a regular part of business. Only 41% have established procedures for counteroffers, and only 23% for unplanned increases due to high inflation. And that, the survey finds, is only half of the problem with corporate reward programs today—which remain shrouded in mystery.

“There was supposed to be a wave of transparency, but it hasn’t happened yet.,” says Tom McMullen, leader in Korn Ferry’s North America Total Rewards expertise group. Indeed, the survey—encompassing some 3,000 compensation professionals in 131 countries—found that 61% believe most employees don’t understand their company’s current reward strategy. “Many managers still don’t want employees to know how these things are administered,” says McMullen.

For decades, of course, companies closely guarded pay information. But with many state governments demanding disclosure of pay ranges and the youngest workers openly discussing their compensation, that era is over. These days, a lack of clarity around pay erodes employee trust, credibility and, ultimately, productivity, says McMullen. “You won’t get the talent in the door, and then you’ll have a tough time retaining who you have,” he says. The pay issues come at a time when most organizations report they’re doing fine, for the most part. Sixty-five percent of organizations say they’re growing moderately or better, while 72% are achieving or surpassing their targets from last year.

Beneath the good results, however, there’s a lack of clarity that experts say could pose trouble in the future. Almost half of respondents, or 45%, said that the firm’s own people managers were not skilled at delivering pay messages. About one-third, 31%, said the organization did not have a clear message, while 28% said the firm’s leaders did not agree on the message.

To be sure, leaders do have some logical reasons to withhold pay data. Some believe that disclosure of this information diminishes their negotiating leverage. Others worry that revealing salaries will lead to uncomfortable conversations. Whatever the case, many leaders aren’t willing to open up about the subject. “A lot of CEOs and CHROs do not want to talk about money,” says Kate Shattuck, leader of the firm’s Impact Investing, ESG and Sustainability practice.

This may be why so many firms lack formal plans around off-cycle pay scenarios. Companies try to make as many compensation-related decisions as possible during a prescribed period, says Dennis Deans, vice president of global human resources at Korn Ferry. “Cycles create some form of predictability,” he notes. But employees don’t consider those cycles when they’re debating whether to take another job. And while most companies have formal guidelines for off-cycle promotions or equity adjustments, they may not have such arrangements for other common situations that aren’t calendar based.

This informality can cause problems, McMullen says. By handling the majority of these scenarios on a case-by-case basis, organizations can wind up with inconsistent implementation—which can inadvertently cause pay-equity issues. “It can also lead to a lot of money being wasted or poorly tracked,” he says. Indeed, as he points out, two employees of comparable standing and performance might receive dramatically different counteroffers from their respective managers.

The lack of framework may be slowing down hiring, says Deepali Vyas, global head of Korn Ferry’s FinTech, Payments and Crypto practice. In a market where employee movement is already greatly diminished from the highs of the Great Resignation era, she says, the disorganization has “created a holding pattern” for many firms trying to replace recently departed workers. Another problem when no framework exists: the fighting over turf when money is taken from one part of an organization to fund pay decisions in another. “It’s often not about having the money, but having to take it from somewhere else,” Deans says.

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