PEST factors

PEST factors address political, economic, social, and technological factors that may
influence an organization’s total rewards strategy. The following examples describe the
conditions that may impact total rewards:

• Political The head of government or legislative body in control most likely
has a particular agenda/position on employee pay as well as executive pay. Their
approach and legislation impact an organization’s total rewards at least from a
legal standpoint (e.g., minimum pay, tax withholding rates).
HR needs to be proficient in compliance with total rewards–related acts and
legislation where the organization does business (e.g., cities, states, countries), as
they are charged with (and expected to) provide expertise, particularly in the area
of compliance.

• Economic A city, state, or country economy, as well as the global economy,
impacts an organization’s ability to provide total rewards. Pay may be frozen, and
variable compensation may not be paid.
Poor economies stunt organizational growth and, in turn, the hiring of new
talent. The positive outcome of this may be that employee retention increases
because of slow job growth/few external opportunities.
Growing and prosperous economies benefit organizational bottom lines and
encourage and promote hiring but accentuate the need for employee retention as
more employees will probably be in the job market and look to leave for a better
opportunity.

• Social Citizens have views toward organizational pay, particularly that of the
C-suite and the CEO. The information on the pay of these individuals is easily
accessible if the organization is publicly traded. Even though compensation
committees have the ability to control and impact executive total rewards, all
too often compensation for the highest levels of an organization is viewed as
exorbitant and leads to negative public opinion.

• Technological An organization’s ability to automate, streamline, and improve
the efficiency of many transactions that accompany total rewards from regular,
periodic base pay to tax withholding to government-mandated reporting and
filing are directly impacted by technological advances. Organizations may
outsource their technology requirements to third-party vendors that develop
and manage applications. However, software may also be licensed so that
organizations can perform the function in-house.

A less common approach is for companies to develop the technology themselves.
This usually is because they lack the money, the expertise, and/or the ability to
maintain the technology.