Compensation Resolutions for 2024
Following the fluctuating trends in compensation over the last few years, it is important for companies to take a step back and reassess what compensation means, its purpose, and how it is evaluated. As the market continues to stabilize, after a few years of historic changes, there are a few primary resolutions to aid companies in reestablishing best practices and motivating the talent we aim to retain.
Establish Effective Compensation Programs and Analyses
It is best practice to reevaluate the compensation for a company’s entire employee base every two to three years. This analysis is typically inclusive of base salary and total cash compensation (base salary + annual incentives) at both an actual and target value.
This analysis is intended to determine the fair market for each unique position within the organization. Once the specific position has been compared to market, the company can determine what percentile they aim to pay at per their compensation philosophy and how performance and experience impacts everyone’s position within that range.
Salary Grade Structure
A salary grade structure is a very effective tool for companies to take information from an all employee compensation study and group employees and jobs based on both external market benchmark data and internal equity. Market data is helpful information, but it does not always fit the goals of the organization comparing hierarchy of departments and value-generating roles.
For example, private and public companies often offer high compensation packages for sales and business development roles, as these positions drive revenue and value to the organization. For Non-Profit Organizations, more attention is given to development and fundraising positions for the same rationale.
Pay Equity and Compression Analysis
A pay equity analysis is a unique compensation project, as it can be conducted with or without an updated market analysis, however undated market data is recommended.
Pay Equity Analyses are intended to highlight potential concerns within an organization’s current compensation programs. This could be inequities relating to any of the following points of information:
- Individual years of experience;
- Individual time within current role/job;
- Unique certifications/designations; and
- Other differentiating criteria if available.
Aside from potential concerns with compensation between different individuals within the same role, this is the easiest way for any compression concerns to be identified.
Compression has become one of the largest concerns in compensation as we head into 2024. New employees are brought into organizations at higher rates due to the level of competition, resulting in wide ranges for a single role and compression within departments and employee levels.
Pay Transparency Focus
In addition to equity, pay transparency continues to gain traction as more states enact laws surrounding this issue. Whether you operate in a state with transparency laws or not, it’s about more than compliance. Employers should take a proactive approach and conducting a pay equity analysis is a great start. It’s much easier to be transparent with employees when you know you have a sound structure in place.
Determine Appropriate Increases
WorldatWork and the Society of Human Resource Management estimate an average annual salary increase of roughly 4% as we enter into 2024, down from 4.5% in 2023. As salary increases are starting to normalize and readjust from the COVID years, it is important for employers to consider other areas that might need further attention.
Salary Grade Structure Increases
NFPCC notes a salary grade structure is an important and effective tool for a company to streamline and maintain their compensation strategy and philosophy. While a well-built structure is meant to last an organization for many years, it is best practice to have the structure reviewed and adjusted every three to five years at a minimum, ideally annually.
WorldatWork projects an average merit increase of 3.5% entering the New Year. Unlike salary increases, merit increases are meant to reward and recognize the organization’s’ employees for their performance and achievements rather than standard movement in the market. These programs serve to motivate and retain top-level talent.
The world of compensation trends and practices has seen many changes over the last few years, resulting in quick short-term focused adjustments and inconsistent strategies. A New Year provides an excellent opportunity for companies to reevaluate their priorities, strategies, and compensation plans. People are a company’s most important asset and solid, well-built compensation programs and offerings are a great starting point to retain and motivate those employees for a successful year. The above recommendations will have you moving in the right direction.