Compensation Trends Business Management Daily reports on some of the most popular 2012 compensation trends in a March 2012

article. More pay for performance programs. Higher performing employees will receive the largest annual raises. For most employers, this simple policy makes perfect sense. Your high performing employees will agree. Tailoring compensation policies aligned with business goals. Compensation levels will depend on an employees contribution to the companys goals, objectives and bottom line. Even non-revenue generating staff can contribute to organization goals and objectives, and will be paid accordingly. Higher raises for higher performers. Hoping to send a message, many employers plan to give outstanding performers much higher compensation increases than average-output employees. Sure, compensation is confidential. However, the word should get around that top performers are being rewarded better than average production staff. Increased non-monetary benefits. Trying to help strike a more favorable employee work-life balance, many employers plan to offer more job flexibility. Increased training and recognition programs will also target positive employee motivation. Committed focus on retention and turnover decreases. Aware of the staggering cost of turnover, many employers are designing compensation programs, e.g., bonuses, for currently valuable employees to convince them to stay. Overtime and extra pay restrictions for budgetary control. Many companies will continue to limit overtime and other extra pay to maintain strong compensation budgetary control. The layoffs and downsizing may have ceased, but budget control remains a priority. Increased benchmarking of compensation. Many employers are redesigning compensation policies based on competition, local and industry comp structures. Internal, in a vacuum traditions are being phased out. More open employee communication. The end of the recession morass is motivating more employers to discuss compensation policies and review current and projected salary initiatives and plans with employees. Reduction in merit pay increases, but larger variable pay budgets. Employers are restructuring compensation budgets to include fewer dollars for classic merit pay increases and increasing monies in variable and performance compensation. Updating compensation policies and procedures. The recession did not encourage executives or HR to spend valuable survival time on modernizing compensation policies. Employers are focusing on discarding out-of-date policies, replacing them with updated job descriptions, with contemporary pay scales and competitive compensation programs

THE CONCEPT
Under the pay-for-performance model, an employees total compensation is the sum of two distinct parts: A base component set by what the competitive market pays for a comparable position, factoring in skills and experience, and A variable component determined by how well an individual or group of employees does in meeting specific goals. The variable pay an employee receives is based on her or his performance or contribution as determined by measuring the workers results against individual targets that are set and clearly communicated in the beginning of each performance period. Hence, those who contribute the most get paid the most. For instance, if a companywide goal is to retain key clients by providing quality service, the variable pay part of an employees total compensation could be linked to measurable indicators of delivering quality client service. The logic is that, if you set specific goals, employees can earn more by reaching or surpassing those goals. And this in turn will lead to heightened client service quality