Sea Change on the Horizon for Compensation Professionals

At this year’s Total Rewards Conference, WorldatWork CEO Anne Ruddy kicked off the event with an exciting view into what WorldatWork is all about and where it’s going. The theme of the conference was “grow,” and what better way to kick off than with a message about how WorldatWork as an organization plans to grow and deliver better tools and insight to compensation leaders.

Anne shared three trends she thinks will radically impact the roles of compensation professionals:

  1. Automation, both directly in how compensation professionals do their jobs and on the composition of workforces (e.g., automation and robotics displacing certain roles while creating other roles).
  2. Broadening definitions of the work force that include remote employees, contract employees, and ongoing effects of globalization.
  3. The emergence of big data and analytics in how information is consumed, produced, and harvested for decision-making.

The first observation is right on. While automation has reshaped administration and accounting, an emerging topic is how automation can improve participant communication. Automation will also continue to disrupt and change the composition of the labor force itself.

To Anne’s second point, the work force itself is broadening and going global in entirely new ways. One specific manifestation in the space of equity compensation is global mobility, and the flow-through effects on employees (withholding and tracking), administration, and corporate accounting.

From an equity compensation perspective, we’re most excited by the emphasis on big data and analytics. For instance, the proxy is becoming a much more numerically intense document. Sue Holloway, WorldatWork’s executive compensation practice leader, told me that proxy advisors and investors are using this information in more varied ways. “We’re not only getting more information,” she said, “but there are layered interpretations being imposed on top of the information as a result of Dodd-Frank regulatory changes. There’s growing concern that this will cause homogenization in executive compensation in order to check the box instead of design compensation programs that are unique and drive strategy.”

What’s more, Sue observed, compensation professionals are analyzing turnover data, comparing it with equity patterns and extracting other insights from the wealth of equity and HR data that are increasingly available.

Sue and I agreed that analytical modeling can help companies support the compensation design process. For example, at Equity Methods we’re using a variety of different models to identify the features of an award driving award costs or simulations of how the award might behave and payout under different scenarios in the future. The mantra behind this branch of analytics is “no surprises.”

Overall, the compensation field is changing rapidly. In the last five years, the regulatory environment has undergone a full metamorphosis. While this has triggered more nuanced thinking about compensation, it’s also created the perfect storm as award recipients struggle with confusion over their awards and boards are more risk averse and expecting more proactive thinking. The next five years will definitely be interesting.

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