“Despite the importance of pay when it comes to attracting and retaining employees, companies are falling short in the delivery of their base pay and annual incentive programs, according to research from global professional services company Towers Watson. Further, while the competition for talent is heating up, companies are not differentiating pay for their best performers as much as in recent years, and some continue to provide annual bonuses to employees who don’t meet performance goals. “Pay really matters to employees when they make decisions about whether to join or stay with a company,” said Laura Sejen, managing director, Rewards, at Towers Watson. “But simply offering a competitive salary and annual bonus is not enough to win the war for talent. Employees believe that employers are falling short in how pay decisions are made and that there is much room for improvement.” Consider these findings from the Towers Watson Global Workforce Study:

• Only one-half (50%) of employees believe they are paid fairly compared with other people in similar positions in their organizations.
• Fewer than six in 10 employees (59%) say their company does a good job of explaining their pay programs.
• Less than half (40%) report a clear link between pay and performance

..In a separate survey, Towers Watson Data Services found that U.S. employers are planning to give pay raises that will average 3% in 2015 for their exempt nonmanagement (e.g., professional) employees. That is only slightly larger than the average 2.9% increase workers received in each of the past two years. Meanwhile, annual bonuses are expected to fall short of target, the fourth consecutive year employers are unable to fully fund their annual incentive pools. However, while star performers are expected to receive significantly larger pay raises and above-target annual bonuses, employers are differentiating less for performance compared with previous years.”