Getting Compensation Planning Right for the Year Ahead

[00:00:01] Welcome to the Work Trends Podcast brought to you by Talent Culture. I'm your host, Megan M. Biro. Each episode, I interview really smart people who are reimagining the world of work. Be sure to stay current with all of our insightful podcasts by visiting our page at Talent Culture Work Trends on Apple Podcast or Spotify. And of course, you can listen at talentculture.com on the podcast page.

[00:00:31] Hello and welcome to the Talent Culture Work Trends Podcast. I'm your host, Megan M. Biro, and I am joined by our partners at Marsh. And if this name is unfamiliar to you, it's a new name for Mercer. So you are going to see a new name and look across their solutions, but please know the data, methodology, platform access, and support you rely on remain the same.

[00:00:58] In today's episode of Work Trends, we're discussing compensation planning for the year ahead and how employers can balance business realities with fair, competitive pay that helps them attract and keep great people. But before we begin today's podcast, please ask yourself these two questions.

[00:01:17] One, how confident are you that your compensation plan reflects both the market and what your people bring to the organization? And two, when you can't invest everywhere, which we know is a reality, how do you decide which pay decisions will make the greatest difference?

[00:01:44] Today, we are so excited to be joined by Belinda Roberts with Marsh. Belinda is a data analytics and technology leader based in Louisville, Kentucky. She has more than 25 years of experience working in HR and corporate and consulting organizations.

[00:01:59] She has predominantly specialized in rewards consulting, data and technology and has worked with many Fortune 500 companies. Her current focus is on the rewards data product portfolio, ensuring the best in class data products are produced while continuing to innovate new and relevant solutions. Belinda, we're so happy to be speaking with you today. I'm glad to be here. How's everything going in your world?

[00:02:24] You know, it's busy, busy. It's survey season. So we're all working pretty hard to get our data products out to our clients. So out there meeting with everybody and it's exciting times. You know what, Belinda, there is no question about it. Can you tell us, let's start with Q1 out there in the audience. We hope you're taking notes because there's going to be a quiz later. What are you seeing in the audience?

[00:03:16] Traditionally, you're going to be seeing in the audience.

[00:03:46] Thank you, Belinda, for bringing this up because I know there's a level of uncertainty in the market these days that's really unprecedented. And for anyone who needs to look ahead, this is super useful information right now. What stood out most in the latest compensation planning survey results? I'm curious, you know, were there any findings that surprised you, challenged the assumptions organizations may have made, say, earlier in the year?

[00:04:14] Well, our most recent compensation survey or compensation planning survey, which includes around a thousand organizations, pretty big just across the US. It's a broad scope. So it goes across 15 or so industries and it covers small companies all the way through to large companies. We do the study in around July. So it's the first time we ask companies about their projections for 2027.

[00:04:42] We're collecting it, incidentally, right now. And that will be open until October 30th. So if you've never participated in that survey before, if you wanted to reach out to surveys at mercer.com. Yes, it's still Mercer, even though we're Marsh now. Still got some emails. Yeah, I was just going to say the I want the audience to know, Belinda, that we are now officially Marsh. Correct. Yes, we are one company, always have been, but now under one name. We still got a lot of our email boxes and things under Mercer.

[00:05:12] A lot of our products are still called Mercer, something like our Mercer benchmark database. That's, you know, a brand we are not willing to let go of. But yes, we're definitely one big Marsh family. So very exciting. So if you do want to partake in the compensation planning survey that's coming out, they'll come out probably in November. Reach out to surveys at mercer.com and get included on that distribution list and you'll get a free copy of the results. There's some really interesting information in that survey.

[00:05:42] So one important thing to note is when we do that survey in July, those projections are really preliminary. So 90% of organisations say that they're in the early stages of planning. But historically, those budgets hold pretty steady to those projections. So like within a tenth of a percentage or less.

[00:06:04] So we look at merit only on its own, but also total increases, which incorporates merit, promotional, off cycle and cost of living adjustments. So kind of rolled together in an all in salary increase budget. So what we're seeing is the projections for 2027 coming in at 3.2% for the merit and then 3.5% for total increased budgets.

[00:06:31] So if projections hold, that would mark a four-year consecutive trend of pretty moderate salary increases after that sort of high watermark in 2023, where it was sort of up around the 3.8 and 4.1% coming down and sadly probably continuing to drop. Yeah. Yeah, it seems that way, doesn't it? Yeah, I will say that there is some interesting things when you look at it from an industry breakdown.

[00:07:01] High tech banking and energy and kind of reinsurance insurance and services are running above the national average, while consumer goods, healthcare and retail are lagging. I think the differences there are in talent demand, business conditions and market pressures that affect those different sectors.

[00:07:22] For high tech, you know, we've seen this pattern in the past, you know, they're still leading the market with high increases, even though they are facing layoffs. On the other end of the spectrum, your consumer goods and retail are just much more exposed to discretionary spending patterns. We see that in our NBD data too, our general benchmark database. And that really does have a big impact.

[00:07:48] Most companies say that the economic environment will have an impact on their compensation decisions. Well, I think our industry really appreciates the research that you share. And, you know, let's stay positive, right? It's nice to see what's happening on a macro scale from such a trusted source like yours. So all good. I mean, the data is here. Let's be mindful. Let's look at it, right? Yeah. It is what it is.

[00:08:17] With compensation budgets remaining, you know, relatively steady, how can employers decide where to invest, right? Like, how should they balance all of this market competitiveness with the internal fairness, critical skills and pay gaps between newer and more experienced employees?

[00:09:09] Yeah. With merits around 3.2%, that's just a lot tighter than we've ever seen in the past. And at that level, you just can't do peanut butter increases where everybody gets a little and literally nobody feels it. You just have to be a lot more targeted. I love that. I love the peanut butter thing, by the way. Yeah. It's a trap that a lot of organizations fall into. Two words. Peanut butter. Love it. Right? Right?

[00:09:39] Like, love the taste, yes. But even the term, right? Right. I think it really, Belinda, kind of encapsulates all that is happening there, if that makes sense. Spreads a little thin, right? Yep. So what organizations that are doing it well are doing three things, or I see them doing three things to make those dollars go a little bit further. So first, looking at roles where retention and market risk roles.

[00:10:07] So where the jobs we're losing someone's really going to hurt the most, or where the market is moving the fastest. Focusing in on those roles makes the most sense with the dollars you have, where you have those smaller budgets. Second, pay equity gaps and pay gaps where newer and more experienced employees.

[00:10:30] Also those pay gaps where you've got newer employees coming in, and there's a gap between those and the more experienced employees. And third, broad merit increases with whatever is left. So that peanut butter with whatever is left, because we still want to keep the rest of our employees happy. And if there's stuff left over, we've got to spread it around as much as we can. Yeah, no question. I mean, these are important decisions. Yeah, I think so.

[00:10:58] Off-cycle pay is a good example of another place to look at. Most organizations are giving off-cycle increases, and they're really common. Most organizations don't really track them, though. And that makes sense on its own, but without a view of the total, you can't really see what's happening to equity and to pay compression or to your budget.

[00:11:20] And this is really where you add value as a compensation professional, and you can show leaders where the patterns they can't see on their own are, and flag those risks before they turn into a bigger, more costly problem. So I guess my advice would be to point your dollars at the highest risk talent, check your work with good solutions up front,

[00:11:42] and then use the best of that steady budget as you can using a more targeted application. So all good, right? Thank you for these recommendations on this front, because it is complex, and there's a lot of different ways to slice it. As compensation teams wrap up the year and start planning for what's next, what should they be reviewing now, and what is easy to overlook? Right now, we're all heads down, right, in planning season.

[00:12:12] All those surveys have just come out, and everybody's asking what's the number, but the number's only part of it, and it's really easy to overlook how you spend it. The market is telling us the budgets are steady, so we're not going to get a big new pot of money. So what's the lesson for 2027 is that there isn't a big new budget, and we've got to make a familiar, let's put it that way, budget work harder and smarter.

[00:12:39] So talent's still tight in a lot of places, especially for that critical and hard-to-find skills. We know that when budgets are tight, we just can't outbid everyone on base pay.

[00:12:52] We're seeing the smarter organisations lean into other things like benefits that people actually value, flexibility about maybe where people work and how they work, clear career pathing, and different retention tools that the different people in your organisation value. These don't cost all that much, and they can actually make a real difference. So where do you start? I would say five different moves.

[00:13:20] First, define the problem you're solving for. Are you trying to stay competitive with the market? Are you solving for pay equity? Are you trying to acquire skills? Pay compression. There's a lot of things to think about here, but getting clear on really what are your core issues you're trying to solve for gives you clarity on where you need to focus. Second, treat the market number as a context so that 3.2% has to be spread out.

[00:13:46] Understand where you are paying right now and where you are at the biggest risk of losing paid people and what you can actually afford. Also, understand how your business is performing so that you're not surprised when finance tells you, here's your number. So we can tell you what people are going to potentially pay next year, but finance is going to tell you what your number is anyway at the end of the year. Oh, for sure. Yeah. Yeah.

[00:14:11] I mean, I cannot believe we're here talking about 2027, but here we are, right? Yeah. This is all great advice. Okay, so let's move on to what's really shaking things up industry-wide. As AI changes how work gets done and which skills employers need, how should compensation teams think about its impact on roles and pay? This is a tricky one because it's changing a lot right now.

[00:14:40] And I, in my role, also work a lot with our AI enablement and AI adoption in our organization. So I see this firsthand with roles in our business. And we're starting to think about things from a perspective of not so much how much is this job worth, but what is this job becoming? Because AI is changing what's inside the role much faster than our job titles, levels, and architectures can keep up with.

[00:15:07] So, like, think of this from a software engineer perspective. The work that that person does today looks very different to what it did 18 months ago and 24 months ago. But that title and level hasn't changed. So that part's real easy to miss. So take one job, say, a mid-level role. AI can push it in two directions. In the first, AI helps a person do more advanced work than they did before. They make bigger decisions and handle harder problems. And the job's moving up.

[00:15:38] On the second hand, AI takes over the thinking and leaves the person with simpler tasks. So that job is quietly shrinking. On an org chart, they look the same. The same title, the same level, the same pay range. But the pay implications are really different for the two different cases. One case, you have someone doing more than the job is priced for, and they'll leave for a role that pays for that. On the other, you may be paying above the market for work. That's gotten simpler.

[00:16:06] And you have no easy way to adjust back for that. So you don't have a real easy way to tell just by looking at the titles. You have to look at the work. So I would say the first step is practical. Pick the roles that are most affected by AI and ask the simple question, is AI helping the person do the work or is it replacing the work? And either way, it's the same question across the whole company. But it all differ by role. Yeah, it's all kind of the same.

[00:16:33] But I think that this gives leaders a lot to think about as these roles and skills needs evolve because we know a lot is happening right now. So on that note, let's wrap up with one more AI-related question. Sure. Where can AI genuinely improve compensation planning today?

[00:16:54] And where is human judgment still essential, particularly when decisions affect fairness, transparency, and employee trust? Okay. So this is a really pertinent question. We asked this question in our most recent compensation planning survey. So we have a good understanding of what companies are doing. And AI adoption and automation in the compensation space is advancing quite quickly. Now, I will say that it is mostly advancing in the analytical and structural space.

[00:17:24] That kind of doesn't make a ton of sense. But what that means is they're using it for more analytical type work and less judgmental work. So around 70% of organizations say they are using it in some form to automate work. But only really a quarter of them are doing it in a largely automated way where there's very little human intervention. The type of work that they're automating is job matching, job leveling.

[00:17:52] They're getting into different types of work that is much more rote, much more repetitive work that AI is easily able to accomplish. But then a human can go behind and check their work much more simply. What it's not really getting into very often is work that has much more consequences on employee pay.

[00:18:16] So we're not seeing it as much used for things like salary increase recommendations, pay equity analysis, manager decision support, and things like budget optimization. But the reason why that is because it's all about consequence, right? Like a wrong match is a pretty fixable error. A wrong salary recommendation or an equity recommendation. It's a whole lot bigger problem to fix if you get that wrong.

[00:18:45] So there's also some functional barriers that people are struggling with too around data and compliance and legal. And there's certainly appetite there from organizations wanting to do more. But there is a real concern around the risk as it gets closer and closer to the actual consequence and pay. So the closer you get to pay, the more frightened, I think, and adverse companies are to use AI and automation.

[00:19:16] Oh, totally. And I have to say thank you. I mean, we are clearly in an age of innovative tech that is extremely exciting in so many ways. But I do think we need to hold on tight to that human touch on really what matters most. And I'd say that livelihoods and income fall into that category. So I really appreciate your balance take here, Belinda. It was chock full of helpful information.

[00:19:43] And I want to thank you for just being here today. Absolutely. Any final thoughts from you? No, I think it's exciting times. And I love comp. I love data. I love AI. So I'm excited to come and talk to you about it. I hope you all join in and participate on a comp planning survey. The more the merrier. And it's really good information. So surveys at mercer.com if you want to participate in that. And it's been a pleasure. Here are a few of my key takeaways.

[00:20:12] Number one, a steady compensation budget still calls for the thoughtful decisions. Look closely at market competitiveness, internal fairness, and critical skills to understand where your investment can make the greatest difference. Number two, planning for the year ahead means looking beyond salary budgets. As AI changes the work itself, compensation teams need to stay connected to how roles are evolving and which skills are becoming more valuable.

[00:20:40] And number three, AI can support better compensation planning, but human judgment remains essential. These decisions affect people's livelihoods and fairness and transparency and employee trust need to stay at the center. And to our wonderful community, I want to thank you for listening to the Work Trends podcast, the place to find meaningful connections at work. If you love what we do here, make sure to share our podcast with your friends and colleagues.

[00:21:07] Send us a question on the socials using the hashtag Work Trends. See you soon. Thanks for joining us for today's conversation. I hope you enjoyed it as much as I did. I love learning something new in each and every episode. Just a reminder that you can listen to all of the Work Trends podcast on Spotify, Apple Podcast, and the podcast page at talentculture.com or your favorite podcast platform.

[00:21:33] Be sure to subscribe so you can listen on the go and stay up to date on all the latest news you want to hear. I look forward to catching up with you all next time, and I hope today's information made you wiser, happier, more informed, and most importantly, thinking of how you can use it to improve the quality of your career, your life, and your world of work.