What’s changing in employer compensation strategies in 2013? Diana D. Neelman of Compensation Resources, Inc. recently provided an overview of recent trends every employer should be aware of.

Ongoing compensation trends will affect 2013 choices

Economic conditions stagnated or reduced salaries over the past 3 years. As conditions begin to improve, companies are realizing that their market competitiveness may have suffered. Many companies are beginning to reevaluate their existing salaries and the salary structures by undertaking market studies to determine where they stand.

1. Since some employees may be eager to seek other employment as the labor market opens up, it is important to understand market positioning in the event that compensation is one of the main drivers for seeking another job, particularly for recent graduates.

2. Employees are only aware of what their getting (cash compensation, benefits, professional development, etc.) if their employers tell them so. Total rewards statements are effective in getting that message across.

3. Concurrent with improvements to the economy is the fact that companies are refocusing on their strategic plans. Ensuring the total rewards package is properly structured will enable employees to contribute towards goals that relate to the strategic plan. However, this is a significant effort that needs to be undertaken by HR.

"Not only must that base pay be competitive and commensurate with the market and both performance on an individual and corporate basis, but the opportunities for incentive compensation should be provided to those that can actually impact the strategic plan." Diana Neelman told us in a recent BLR webinar. Incentive compensation provides organizations with another layer of "pay-for-performance" in addition to annual merit increases to base salary, which are relatively modest as compared to the impact incentive compensation can make to total rewards.

4. Many companies also want to refocus on pay-for-performance to use their compensation dollars more effectively. While many companies embrace a "pay-for-performance" concept, this was somewhat stalled during the recent economic crisis. However, as the market begins to improve, companies are returning to this concept and looking to reward employees for their performance.

True merit-based pay is most effective when it can be tied to a performance management process that objectively and accurately evaluates individual performance, so that the merit increase is commensurate with the performance contribution of the individual, while recognizing company budget and overall performance.

While many companies want to use pay-for-performance systems, there are still organizations who continue to provide employees with across-the-board or cost of living increases, with no relationship to performance. In many of these organizations, this is a cultural issue that has existed for many years, which is difficult to move away from as employees feel a sense of entitlement.

5. While difficult, the culture can shift to transition to a merit-based process. Strong communications with a commitment from the top down is the first step to moving away from entitlement, along with effective management training. While turnover may result as part of this transition, most likely it will be from the poorer performers who have hidden behind across-the-board increases.

For more information on compensation trends for 2013 and how they may affect your compensation strategy, order the webinar recording of "HR’s Compensation Update: Tips, Trends, and Tactics for 2013." To register for a future webinar, visit http://catalog.blr.com/audio.

Diana D. Neelman, CCP, is a Principal and Senior Consultant with Compensation Resources, Inc. (CRI) , in Upper Saddle River, New Jersey. With over 20 years of collective compensation and HR experience, Neelman is responsible for business development and project management in all areas of compensation, consulting to a variety of industries on salary administration, performance management, and incentive compensation, with a specific emphasis on executive and general compensation matters within not-for-profit organizations.