The practice of basing a new hire’s salary offer partly on what they have earned in the past has become controversial in recent years in light of the theory that this practice may encourage pay inequities to persist throughout an employee’s career. In 2016, Massachusetts became the first US state to bar employers from asking candidates for their salary histories in an amendment to its equal pay law, and other states have followed suit, including California, Delaware, and Oregon, as well as New York City.
Despite the proliferation of these bans, a recent survey from WorldatWork finds that most employers are still using salary histories as a factor in their pay negotiation process in locations where they are still permitted to do so. While 37 percent of employees surveyed said they had prohibited the practice in all their US locations, 35 percent said they did so only in areas where state and local bans exist and 27 percent said they do not operate in any of these areas.
Smaller organizations were the least likely to ban the use of salary histories nationwide, WorldatWork found, with just 25 percent of organizations with under 500 employees saying they did (49 percent said they did not operate in any locales with statutory bans). Large organizations, in contrast, have done so at greater rates: 46 percent of organizations with 10,000 employees or more said they had stopped using salary histories nationwide, while 37 percent said they had dropped them in jurisdictions where bans are now place.
Employers in India are abandoning the traditional practice of across-the-board annual raises to more targeted compensation strategies in which employees are increasingly expected to earn their raises through high performance or professional development, Saumya Bhattacharya reports at the Economic Times:
Last month, when Aon India Consulting announced the findings of its salary increase survey for 2017-18, average increment was estimated to be 9.4% for the year, almost the same as last year. From 2014 to 2018 (projections), average salary increment has declined from 10.4% to 9.4% — with the focus on performance becoming sharper each year. With the ability to learn new skills getting added to the high-performance matrix, the definition of top performers is also set to change.
Top performers, according to the new definition, would get an average salary increase of 15.4%, about 1.9 times that of an average performer, said the survey. … Experts say the phase of a large chunk of employees getting 14-15% increments is over. Ten years ago, you would have 20% of the organisation categorised as high performers. This has shrunk to 7.5% of the population in a company, they add.
When United Airlines announced earlier this month that it was replacing its quarterly performance bonuses with a chance for eligible employees to win prizes in a quarterly drawing triggered by reaching certain performance goals, the blowback from employees was swift and fierce, forcing the airline to quickly backtrack on the plan. By swapping out the modest quarterly bonus for a chance of up to $100,000, United President Scott Kirby had hoped to make the bonus program more exciting for employees, but the Kirby and the rest of United’s leadership misjudged how employees would react to what many saw as a cost-cutting measure that would make it harder for most of them to earn bonuses.
What happened at United can serve as a learning opportunity for other CEOs and rewards leaders, underlining the risks the come with using gamification to motivate employees. Workplace games can sometimes be more effective motivators than cash, as “winning” offers a form of social recognition that financial rewards don’t. Employees can write off losing out on a cash bonus as the price of taking it easy at work, but recognition that is visible to one’s co-workers and serves a social function can motivate them in a different way.
Gamified motivation tactics can also be cheaper and more cost-effective than extra cash, the New York Times‘ Noam Scheiber points out, even if the only prize the game offers is a compliment from the boss. United’s mistake was not in introducing a gamified element to their rewards program, per se, but rather in what it took away to make room for it. In other words, the psychological rewards of winning a competition can be motivational when they come on top of regular compensation, but they can’t be a substitute for it:
“Shareholders and management get the monetary rewards, and ‘meaning’ and ‘excitement’ are consolation prizes that go to workers,” said Caitlin Petre, an assistant professor of media studies at Rutgers University who has examined similar practices at media companies. “This is very much in line with my understanding of how the gamification trend in workplaces operates.” …
Major US companies are continuing to drop the practice of asking job candidates for their salary histories nationwide in response to the proliferation of state and local laws barring them from doing so. The Progressive Corporation plans to add more than 7,500 new hires to its workforce in 2018, and won’t be asking any of them about their prior salaries as part of the process of setting compensation, the company announced in a press release last week:
Progressive recently decided it would no longer ask applicants about their salary history. “We’ve always based our pay on market research,” [Chief Human Resources Officer Lori] Niederst said. “We hope this change will give candidates who apply for our jobs confidence that they will be paid based on what they bring to Progressive, regardless of whether their previous employers paid them fairly.”
The Ohio-based automobile and homeowner’s insurance provider currently employs more than 33,000 people in almost 400 offices throughout the US. The company plans to hire extensively this year in Austin, Cleveland, Colorado Springs, Phoenix, Sacramento, and Tampa. Only one of these locations (Sacramento, California) is subject to a law prohibiting employers from inquiring about candidates’ salary histories, but Progressive is dropping these inquiries everywhere.
Previous surveys have predicted that most US employees will receive a small increase in their base pay this year, averaging about 3 percent, though high performers can expect a bit more as organizations shift their compensation strategies toward greater differentiation. That 3 percent raise appears to have become standard in recent years for the average employee, as a 4 or 5 percent annual raise once was.
A new survey of CEOs and CFOs from PwC, however, suggests that raises might be a bit higher than expected this year: The consultancy’s Q4 2017 Trendsetter Barometer report, based on interviews with 300 CEOs and CFOs during the last quarter of 2017, found that these leaders expect to raise wages by an average of 4.27 percent in the coming year, compared to the 3.39 percent figure PwC found in Q3 and just 2 percent a year ago. The last time panelists projected average wages would rise above 4 percent was during the second quarter of 2007, the report notes.
Plans for growth are also on the upswing, with 56 percent of the leaders surveyed saying they intended to hire new employees in the coming year, compared to 49 percent who said so in Q3. PwC attributes these bullish plans for 2018 to higher levels of business confidence and optimism about the future of the US economy, with 79 percent of leaders expressing optimism, a notable increase from 59 percent at the end of 2016.
The “Tax Cuts and Jobs Act” passed by the US Congress last month, which lowered taxes on corporate profits and most employees’ salaries, has a number of implications for employers, affecting payroll withholding as well as the tax treatment of executive pay and some employee benefits. One of the arguments the Trump administration and Congressional Republicans advanced for the tax cuts, which were historically unpopular among the American public, was that lowering the corporate tax rate would incentivize companies to use their tax savings to invest in their workforce, giving millions of employees a much-needed raise.
While several large employers announced plans to issue bonuses to employees, raise wages, or make other business investments after the tax reform bill was passed, most companies have indicated in earnings calls and surveys that they plan to parlay most of their tax cuts into debt repayment, dividends, and stock buybacks. Corporate America, Solutionomics founder Chris Macke argued in an op-ed at the Hill in December, was already sitting on large piles of cash and not prioritizing business investment due to insufficient demand. Companies, he wrote, need more customers more than they need more cash.
Whether or not US companies decide to invest more of their tax savings in growing their business (which they may still face public pressure to do), Bloomberg’s Rebecca Greenfield notes that these investments probably won’t come in the form of across-the-board raises. For most workers, the 3 percent annual raise, which has been standard for five years, will likely remain the norm in 2018:
In the 1993 federal budget, the administration of then-US President Bill Clinton created a rule that capped the tax deductibility of top executives’ compensation at $1 million, unless that compensation was “performance-based.” While Clinton had campaigned on the cap as a means of reducing the growth of CEO pay packages, the policy backfired and caused them to grow as companies shifted executive compensation into stock options and performance bonuses, taking advantage of the loophole.
The question of how to measure CEO performance for the purposes of calculating their paycheck (or whether to do so at all) has become a matter of significant debate, driven by the realization that it has not moderated the growth of pay among CEOs and other top-dollar members of the C-suite. The tax reform bills Republicans are currently trying to push through Congress propose to eliminate this loophole, which would raise $9.3 billion in tax revenue over a decade, but the Washington Post’s Jena McGregor points out that closing the loophole may not rein in the growth of executive pay packages just because creating it helped them grow:
Executive pay experts and activists said in interviews that companies are unlikely to severely limit the size of their CEOs’ compensation just because a big portion of it — the vast majority of those multimillion-dollar packages are paid in incentive-based pay — is no longer deductible. …