Managing Compensation and Benefits in a Competitive Labor Market

Dec 09, 2021

In 2020, businesses were in a period of great uncertainty. Flash forward one year, and employers are in a highly competitive labor market.

Compensation, Retirement and Benefits (CRB) programs are a crucial factor for recruiting and retaining top talent in 2021. Looking ahead to 2022, employers need to strategize about how to keep compensation and benefits programs competitive, while ensuring alignment with strategic company goals.

Newport’s 2021-22 Compensation, Retirement and Benefits (CRB) Trends Report includes responses from over 400 organizations, across multiple industries and locations, analyzed by our Compensation Consulting Team to bring you a comprehensive picture of the latest trends. Some of the key findings include:
 

• Annual salary budget dollars continue to be allocated to differentiate performance and have returned to pre-pandemic levels
• Annual bonuses and incentives have been leveraged to drive results in 2021, a trend likely to continue in 2022
• Financial wellness programs are being offered by more organizations to help employees prepare for current and future financial needs
• Non-qualified plans continue to be critical for executive recruiting and retention, financial planning, as well as a tax-efficient compensation vehicle
• Increased communication around employee benefits, continued remote work opportunities, and training on diversity, equity & inclusion initiatives are the most prevalent employee benefits strategies implemented in 2021 

Compensation Practices 

Survey results indicated overall average salary increases for 2021 returned to pre-pandemic levels, close to 3%. Employers will continue to reserve a higher proportion of base salary budget dollars to reward high performers, with an average salary adjustment upwards of 4.0%.

However, economic factors including inflation are currently in the news headlines and impact overall wage growth in 2021.  It is likely we will see actual 2021 salary increases exceed budgets, as organizations leverage compensation in the battle to compete for talent in today’s labor market.

Another interesting trend is how employers are leveraging incentive plans to drive results in 2021. Seventy-five percent of survey respondents provide short-term incentives to employees, of all job levels. From an industry perspective, finance, banking, insurance and manufacturing, and distribution and transportation sectors are more likely to utilize long-term incentive plans.

Retirement Programs

This year’s survey results remain relatively consistent with prior year reports, with 97% of employers offering a defined contribution plan. Matched Defined Contribution plans requiring employee contributions remains the most prevalent retirement plan type offered. More than half of employers surveyed said they provide between 3% and 4.9% maximum match, as a percent of compensation.

Over 90% of employers project that their retirement plan contributions will remain the same as the prior year, while only 1% of organizations plan to decrease contributions.

Results incorporated from the PLANSPONSOR 2021 Defined Contribution Plan Industry Report indicate 49% of organizations offer automatic enrollment with an average default deferral rate of 3% of employee salary and 42% of organizations offer auto escalation with 1% of employee salary as the default rate.

Nearly seventy percent of organizations now offer professionally managed accounts in their retirement plan.

Non-Qualified Plans

For employers, non-qualified deferred compensation (NQDC) plans remain a critical benefit program for executive recruitment and retention, with the primary goal being to create a valuable financial planning tool for participants. Of the organizations offering these plans, the majority of eligible participants include the executives and senior management.

Health and Welfare Benefits

The cost of employer health insurance continues to rise this year as organizations offer employee group health coverage to their workforce and eligible dependents. Nearly 80% of employers saw an increase in health plan costs in 2021.

To manage health plan costs, employers continue to pass on a greater portion of those costs to employees through higher premium payments and deductibles, as well as leveraging employee wellness initiatives.

To attract and retain talent in today’s competitive labor market, employers are offering continued remote work opportunities, increased communication around benefits offerings and training on diversity, equity and inclusion. Telemedicine services, flexible work hours and remote work options, wellness programs and financial wellness are also prevalent trends.