Compensation Trends and Strategies to Win and Retain Talent in the Technology Sector

Published: November 2021


In our recent technology sector compensation trends webcast, Aon’s industry experts discussed innovative, value-adding ways to use data to win and retain in-demand talent and maximize return on investment for rewards.

Talent shortages and “The Great Resignation” are impacting how companies are approaching their total rewards strategies to attract and retain talent. This is especially true in the technology sector, where demand for digital skills continues to increase. The second edition of Aon’s Salary Increase and Turnover Study found that 31% of companies in India are aggressively hiring for technology talent, closely followed by 28% in the United States. The average voluntary turnover for the technology industry is also increasing and likely to continue to do so.

In this article, we discuss key insights from our recent compensation trends webcast, where our industry experts discussed salary increase and turnover trends, ways to dig deeper into your data analysis to uncover root causes of talent shortages, and how to maximize your return on investment (ROI) for rewards.

With turnover rising, some companies are allocating more to their salary increase budget.

Technology companies in the U.S. that pay aggressively (those at the 75th percentile) are budgeting larger overall salary increases (merit plus promotions or internal equity adjustments) for 2022: 5.0% compared to a budgeted increase of 4.5% in 2021.

With increased industry competition and focus, businesses realize they need to be more flexible. However, exactly how they are going to use these funds to adjust salaries for key employees is still an open question. Our conversations with clients reveal that firms are not quite ready to specify what portion of their overall salary increase budgets they will allocate to merit increases vs. promotion/adjustment budgets. We expect many will have special budgets carved out for internal and external equity adjustments, counter offers or case-by-case scenarios.

The way in which salary increases are being approved is also changing. In 2020, 39% of technology companies said they require executive management to review manager recommendations for base salary increases. That number dropped to 27% in 2021. Now the reigns have moved back to the compensation department. “This suggests that executive management is more at ease about following normal administrative pay increase approvals compared to the beginning of the pandemic,” comments Tim Brown, a partner focused on the technology sector for Aon’s human capital practice.

Unsurprisingly, we are seeing higher numbers than average when it comes to turnover. After a crisis, there is always pent-up demand for talent. Companies are experiencing greater market shortages as a result of the coronavirus (COVID-19) pandemic, specifically for technology talent. With most of the stress on these skills, technology firms face an inevitable reality — people are moving jobs. Perhaps bigger than the problem itself, however, are the ways in which businesses are combatting it. Nobody is taking the time to truly understand why their employees are leaving, says Brooke Green, partner and North America leader in Aon’s human capital practice. And the reasons are not always as obvious as you would think.

Don’t throw money at the problem.

When faced with talent challenges, far too often companies immediately turn to the seemingly obvious, but commonly false belief that employees only leave for more money. We need to pay better to retain employees. But Green asks, where is the data to support this assumption? Do we really need to increase employee bonuses and compensation, or are there other, more effective ways to retain employees?

If everyone receives extra cash or pay increases, it will become more difficult to differentiate top performers in the future. Expectations will also rise, and if not met the following year, employees will be dissatisfied. Typically, the companies that have the best retention rates give their employees a better sense of purpose and fulfillment in their work. “Let’s take a step back and do some analysis before we throw money at the problem because that can backfire down the road,” explains Green. Start by analyzing available data, then create an action plan. Finally, have metrics in place that you can consistently track to avoid knee-jerk reactions.

If the main problem is retention, begin by conducting a root cause analysis. Identify hot spots for turnover and the origins of it. In this process, it’s critical to dig deeper into your firm’s data history and identify which employees stayed, which left and why. What happened to them in the year or two before they resigned?  Did they get an equity grant, bonus, or maybe a new manager? Variables like these are all important to consider.

For example, we worked with a recent client to analyze manager tenure and found that the shorter the tenure, the higher the likelihood of direct reports’ turnover. This reinforces the importance of culture — if managers are newer and less immersed in the brand and its culture, their direct reports are more likely to be less engaged and a flight risk. In most cases, using workforce analytics will provide a more holistic picture of underlying reasons for experiencing high turnover — whether turnover is high in a function, job level, region or firm wide.

Maximize your total rewards strategy to retain talent.

When thinking about your future total rewards strategy and priorities, it’s important to first understand what employees want and refocus your effort around those areas. According to Aon’s Employee Benchmark Survey, 75% of people want more choice and control over how benefits dollars are spent, while 56% would rather have a subsidy for wellness and family care over more PTO days. Additionally, a hefty 80% would remix their compensation from what it is today. This tells us that enabling employee decision-making and significantly investing in employee wellbeing are an essential part of the total rewards package.

Clearly, approaches to total rewards have taken on a more holistic view. Aon’s Total Rewards Strategy Survey, conducted in May 2021, found that companies are centering efforts on customizing rewards for different employee segments and creating a clear distinction for top performers more so than five years ago when the study was last conducted. Therefore, businesses will likely lean more on variable pay in the form of bonus and equity grants in the future, which we are already seeing play out for many technology companies.

Next steps

It’s a hot talent market out there and as a result, we are seeing turnover grow and many companies allocate more money in their salary budgets for reserves. Optimizing your people spend involves more than just benchmarking. Technology companies should analyze the root cause behind turnover and avoid throwing money at the problem. In order to deliver on hiring and retention goals, total rewards strategies need to be thoughtfully updated in accordance with the new realities of the marketplace. This may mean readjusting the areas of investment in total rewards based on your firm’s values, culture and employee feedback.

To learn more about technology compensation trends or to speak with a member of our consulting team, please contact Results from our upcoming Employee Experience Study, part of our market practice survey suite, will offer additional insights for leveraging a holistic rewards framework.

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