Compensation and Benefits


Compensation and benefits have long been key drivers in recruiting, attracting and retaining employees. Human resource professionals are integral to creating a compensation and benefits model that attracts talent, enhances engagement and retains employees—all while adhering to appropriate regulations and disclosure rules.



Compensation Equity

HR professionals create compensation and benefits packages to attract and retain employees and believes that employees. As part of these efforts, HR strives to ensure that employees are compensated equitably and without gender discrimination.  
The Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964 are the two key pieces of federal legislation that prohibit gender-based wage discrimination in the workplace. Depending on performance and seniority, jobs that have the same functions and similar working conditions and that require substantially the same skills must be compensated equally.
According to the U.S. Bureau of Labor Statistics, in the second quarter of 2017 women who were full-time wage and salary workers had median weekly earnings of $780, which is approximately 83.5 percent of the median weekly earnings of male full-time wage and salary workers ($934). This raw wage differential, however, does not attempt to compare men and women doing similar work. The challenge for policymakers is determining how much of the wage differential between women and men is attributable to discrimination, legitimate pay practices or other workplace dynamics and what policy changes might help address it. 
 Over the past few years, policymakers have increased their focus on pay equity. Congress introduced multiple bills aimed at addressing the pay differential between men and women, but some legislative proposals raised concerns in the human resource community as to whether they may unduly restrict employers' flexibility to compensate employees fairly based on legitimate criteria, such as cost-of-living differences among geographic locations and different work responsibilities within similar job categories. Federal contractors are currently prohibited from discriminating against employees who disclose compensation information and legislative proposals to apply these rules to all employers have also been discussed in Congress. 
The U.S. Equal Employment Opportunity Commission (EEOC) finalized a rule in 2016 to collect employee pay and hours worked data on a revised EEO-1 report. However, on August 29, 2017, the Office of Management and Budget (OMB) issued a memorandum announcing its plan to initiate a review and immediate stay of the EEOC's rule. SHRM, along with many employers, expressed significant concern that EEOC had not shown how the summary pay data information could be successfully used to help the agency identify instances of pay discrimination. In addition, complying with the new reporting would have increased the EEO-1 data collection from 180 data fields to 3,660 fields,  an additional burden and cost that could not be justified without a reasoned explanation of its utility in addressing the issue.
Outlook: At the state and local level, legislators have focused on the concern that the common practice of asking for a prospective hire’s salary history is perpetuating a salary gap between women and men.  Several jurisdictions, most notably the states of California, Oregon and Massachusetts, the cities of New York and Philadelphia, as well as the territory of Puerto Rico have passed legislation to address compensation equity by prohibiting employers from asking for salary history before making a job offer. A growing number of states and local jurisdictions are taking steps to follow their lead. In addition, as attempts to collect compensation data at the federal level through the EEO-1 Form were put on hold in August 2017, states may seek to collect their own employer wage data. In October 2017 California’s governor, vetoed legislation to require California employers with 500 or more employees to report to the Secretary of State, gender wage differences by job classification or title. It is anticipated that other states may also attempt to pass this type of legislation.
At the federal level, President Trump has said that he supports equal pay for equal work and his daughter and advisor, Ivanka, has been a vocal proponent of compensation equity, but the White House has not offered a specific proposal. House and Senate Democrats reintroduced the Paycheck Fairness Act (PFA) but the legislation is unlikely to move forward in this Congress. The PFA would allow employers to base employee pay differentials only on seniority, merit and production. The PFA would also shift the burden of proof to the employer in discrimination claims, making it easier for plaintiffs to challenge employer pay practices. It is anticipated that state and localities will continue to pass laws addressing pay equity and it is a likely topic for continued federal action.

Executive Compensation

Executive pay levels and the standards companies use to determine pay were put under the public microscope as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), which includes provisions to expand regulatory oversight of executive compensation. Under the requirements of Dodd–Frank, the U.S. Securities and Exchange Commission (SEC) was tasked with pursuing a regulatory framework that expands executive pay disclosures and enforces more rigorous executive pay practices. President Trump has spoken out against the burdens and requirements of Dodd-Frank and, on February 3, 2017, issued an Executive Order asking federal agencies to report on “Core Principles for Regulating the United States Financial System.” Throughout the discussion on Dodd-Frank, several compensation-related provisions have remained in the spotlight:
Pay Ratio.  The SEC's CEO pay ratio rule mandates that most public companies disclose to the SEC the total annual median compensation of all employees (excluding the CEO); the total compensation of the CEO; and the ratio of the two amounts. Public companies subject to the rule must comply with it for the first fiscal year beginning on or after January 1, 2017. In October 2016, the SEC issued guidance on how to make these disclosures.

Clawback Policies. These rules have not been made final, but the proposed rules would require securities exchanges and associations to establish clawback policies. Under these clawback policies, current and former executives would be required to return incentive-based compensation that would not have been awarded based on a company's accounting restatement. The rule applies to incentives resulting from accounting metrics, stock prices and total shareholder returns. Republican SEC Commissioners have argued that the list of officers the rules would apply to is much broader than Dodd–Frank requires.

Pay For Performance. These rules have not been made final but the proposed rules would require companies to disclose the relationship between executive pay and the company's shareholder return, as well as how their shareholder return compares to that of their peers. The rules would require companies to disclose this information from the previous five fiscal years. 

Outlook: President Trump supports rolling back Dodd–Frank and replacing it with "new policies to encourage economic growth and job creation." It is possible that the new administration could maintain some parts of the law, but the details are unclear at this point. The SEC currently has three Commissioner vacancies and therefore lacks a quorum to proceed to a vote on rules or other matters, leaving the impact of the following compensation policies unclear:

  • Pay Ratio.  The SEC's CEO pay ratio rule mandates that most public companies disclose to the SEC the total annual median compensation of all employees (excluding the CEO); the total compensation of the CEO; and the ratio of the two amounts. Public companies subject to the rule must comply with it for the first fiscal year beginning on or after January 1, 2017. In October 2016, the SEC issued guidance on how to make these disclosures.

  • Clawback Policies. Although not yet finalized, these SEC-proposed rules would require securities exchanges and associations to establish clawback policies. Under these clawback policies, current and former executives would be required to return incentive-based compensation that would not have been awarded based on a company's accounting restatement. The rule applies to incentives resulting from accounting metrics, stock prices and total shareholder returns. Republican SEC Commissioners have argued that the list of officers the rules would apply to is much broader than Dodd–Frank requires.

  • Pay For Performance. In April 2015, the SEC proposed rules that would require companies to disclose the relationship between executive pay and the company's shareholder return, as well as how their shareholder return compares to that of their peers. The rules would require companies to disclose this information from the previous five fiscal years. The SEC's public comment period for the proposed rules closed in July 2015 and timing of the final rule is not certain.

Expansion of Employer-Provided Education Assistance

Section 127 of the Internal Revenue Code allows employers to provide and employees to exclude from income up to $5,250 per year in employer-provided tuition reimbursement for courses at the associate, undergraduate and graduate level. This benefit was reauthorized in one manner of another for more than 30 years and finally became a permanent part of the Internal Revenue Code in 2012, largely due to the advocacy efforts of SHRM and the SHRM-led Coalition to Preserve Employer Provided Education Assistance. A comprehensive and flexible benefits package is an essential tool in recruiting and retaining talented employees. Providing tax-free educational assistance and student loan repayment are important tools that employers utilize in order to accomplish this goal.  Section 127, and now, with the expansion of this provision, provides employers the ability to invest in their own people, and to ensure that they are prepared for the increasingly competitive global marketplace

​Outlook: During the tax reform process, the House bill, proposed eliminating employer-provided education assistance. The final bill, H.R. 1, did not contain the provision, essentially preserving tuition assistance. Efforts will now shift to expand and increase the benefit.  The Employer Participation in Student Loan Assistance Act (HR 795), introduced in the House by Representatives Rodney Davis (R-IL), Jared Polis (D-CO), Scott Peters (D-CA) and Elise Stefanik (R-NY), would expand Section 127 of the Internal Revenue Code to include student loan repayment. 

Additionally, the HELP for Students and Parents Act (HR 1656) introduced in the House by Representatives Pat Meehan (R-PA) and Susan Del Bene (D-WA), would exclude from income, up to $5,250, the amount that an employer contributes toward an employee’s student debt repayment or 529 savings account an employee provides for their child. Provides a tax credit to employers based on 50 percent the amount contributed to these accounts.  
In October 2017, Senators Jeff Flake (R-AZ) and Catherine Cortez Masto (D-NV) and House members, Representatives Jason Smith (R-MO), Rodney Davis (R-IL), Henry Cuellar (D-TX), Susan Del Bene (D-WA) and Danny Davis (D-IL) have introduced S.2007/H.R. 4135, the Upward Mobility Enhancement Act, to increase the amount allowed under Section 127. The Legislation would allow employers to voluntarily provide up to $11,500 per calendar year in education assistance for their employees. This amount will be indexed for inflation.