As we enter the new year, many employers are conducting end of year pay reviews for their employees. This year’s pay trends are likely to differ from previous ones due to a variety of factors which may influence how leaders and workers approach their compensation strategy in the coming twelve months. Considering that a recent study by Willis Towers has revealed that 75% of organizations are struggling to win over new talent, it is critical for companies to actively improve their compensation IQ in order to be a viable talent competitor.
As there is a clear need for employers to improve their compensation IQ in 2023, consider the following trends that are rising in the compensation space as your organization looks into how best to reward talent.
- Salary Budgets are Rising - A recent report from Salary.com has found that the long-predominant 3% raise has been replaced by a median raise of 4% across all employee categories, breaking the more than 10-year trend of stagnant projected salary increase budgets. A quarter of employers even plan to offer increases between 5-7% this year, marking 2023 as a ‘banner year’ for compensation. It’s good to keep in mind the careful balance organizations will have to strike so as to meet the talent market demands to competitively compensate the workforce in 2023, all while striving for positive financial performance in a difficult economy.
- Data Based Compensation Decisions – Those employers who have limped along without clear salary guidance or practices in past years may find it increasingly difficult to continue down the same path. Now is the time to put in the hard work to build a compensation structure if your organization has been navigating compensation without defined salary ranges. In a data-driven world, employers who leverage competitive salary ranges will find that making data-based compensation decisions for new hire offers, promotions, annual increases and other pay adjustments have an advantage when it comes to attracting and retaining talent while avoiding other pay-related issues such as salary compression and pay equity issues.
- Pay Transparency – Across the board, pay transparency is becoming a hot topic, and if there was a single reason to establish salary ranges, as mentioned above, pay transparency is it. Employees want to work for organizations who are transparent about pay. With the UK’s launching of a pay transparency pilot program and pay transparency legislation beginning to be enforced in multiple US states, it is looking as if being open and honest about compensation is going to become more than an expectation but rather the norm. Doing the work now to establish transparent pay practices and guidelines will help you to, if not get ahead, at least not fall behind the curve of the burgeoning pay transparency movement. You will also be demonstrating to the talent market that your organization values pay equity and equality.
- Pay Communication – How members of the organization discuss pay can be as important as the pay itself. Communication is everything. Now more than ever, organizations should be devoting time to train leaders about how to have effective compensation discussions. Being able to articulate why someone is receiving an increase and how the amount was determined is something that employees want and deserve to know. This means detailing the rationale behind data-based compensation decisions and knowing the difference themselves between pay adjustments, merit increases, lump sum payments, and so on, and why we allocate one over another depending on the circumstance. Educating your HR team, especially Talent Acquisition, is also critical to ensure the organization is painted favourably with fair offers and a well-articulated total rewards package. To be effective in bringing candidates in the door, recruiters must know how to effectively leverage salary ranges and formulate an offer based on the candidate’s experience and alignment to the open role, as well as understanding the current compensation elements someone may be leaving behind. Investing time in proper training helps to foster trust in new and current employees, and will demonstrate why your organization is an attractive place to work, while reminding those who already work for you why they want to continue doing so.
- Geographic Pay Policies – With the rise of remote and hybrid working arrangements, geographic pay differentials are becoming a more prominent topic of discussion, and a highly complex component of compensation. It can be difficult to determine how to approach compensation for people who are performing the same work from different places or if it makes sense to differentiate compensation between remote and on-site workers in areas with different costs of living. Borderwork’s Geographic Pay Policies study found that of the 62% of organizations with existing geo-pay policies, 44% of them are considering modifying or have modified their policies due to the increase in full-time remote work. There is a growing need to develop strategies to navigate this in the coming year as inflation continues to impact the cost of living and the concept of how we work continues to evolve.
- Getting Creative - Compensation is both a science and an art. Creative solutions to compensating the workforce are always worth exploring. Effective compensation programs require that you compensate the right people, at the right time, at the right level, in the right way. Creative solutions will be circumstantial but could include some of the following to effectively attract or retain the right talent: establishing new and innovative incentive programs, re-thinking employee recognition, improving leverage of sign-on and retention bonuses, offering sabbaticals, 4-day workweeks or instituting programs to emphasize your company’s commitment to making a positive social and/or environmental impact, just to name a few.
Making the effort to invest in improving your compensation IQ as an employer can be the differentiating factors when it comes to your talent strategy in 2023. Amongst the rising inflation rates, the cost-of-living crisis and changing attitudes towards work, understanding how to leverage compensation as a way of making you stand out will help ensure you are bringing in the right people. To discuss growing your compensation IQ or reviewing your compensation strategy in more detail, get in touch with me at firstname.lastname@example.org
Copyright OrgShakers: The global HR consultancy for workplace transformation founded by David Fairhurst in 2020