Compensation Trends and Forecasts for 2024

HR and CFOs play an important role in getting great employees and keeping them happy. Offering the right pay is essential for both.

Treating your employees right by paying them fairly pays off in the long term. You’ll attract and keep great people, who will be happier and more productive. Underpaying employees leads to a revolving door, hurting both your bottom line and your ability to do great work.

Keeping up with pay expectations when both the economy and employee needs are in flux is no easy feat. What pay raises are employers planning for 2024? How will inflation impact talent acquisition across different industries? What emerging trends should you be aware of?

Delve into industry reports, analyse key data, and present expert insights to answer these questions and more. Prepare to unlock the power of informed compensation strategies!

2023 Compensation recap

Key compensation trends

1. Focus on variable pay: Variable pay, such as bonuses, commissions, and profit-sharing, has become increasingly popular (1) (2).
2. Emphasis on total rewards: Employers offer more than just money, they also provide additional benefits like work-life balance, company culture, flexible schedules, and professional growth opportunities. (1) (2).
3. Greater use of analytics and data: Businesses are now using numbers and “smart tools” to decide how much to pay their employees receive. This helps them stay competitive with other companies and reward people based on how well they’re doing. (1).

Unexpected events impacting compensation

1. High employee turnover rates: The workplace experienced high employee turnover rates and evolving return-to-office policies (3).
2. Inflation: Inflation contributed to expectations for record salary increases (4).
3. Economic downturn: Uncertainty about the economy led some employers to hold back on boosting wages. (4).

Key takeaways and lessons learned

1. Pay transparency and equity: The forced switch to remote work during the pandemic gave employees more choices and flexibility, changing who has the upper hand in the workplace. Employees are demanding greater pay transparency, and organizations are taking a closer look at pay equity (2).
2. Financial well-being: Studies show that financially stable employees are more productive, engaged, and less likely to miss because of health issues. (4)
3. Benefits for each life stage: Companies are focusing on benefits that address each life stage and add more features to their benefit programs that meet employees where they are (4).

2024 Compensation trends and forecast

Overall salary increases

Predicting your compensation budget for 2024 might feel like navigating a rollercoaster. While inflation remains a top concern, companies also know they need to stay competitive in the talent market. So, what can you expect in salary increases? Let’s unpack the forecasts:

Average increase: Expect some ups and downs ahead – costs are rising across industries by 3.5% to 3.8%. This is down from 2023’s average (4.1%), reflecting the balancing act between controlling inflation and retaining top talent. (SHRM, Mercer, Payscale)

Exempt vs. Non-exempt: The gap between the two might narrow this year. Organisations may prioritise raises for non-exempt employees to counter the immediate impact of inflation. However, some sources also predict larger increases for exempt positions because of critical skill demands. (WorldatWork)

Industry variations: Don’t expect a one-size-fits-all approach. Tech and healthcare remain on the high end, likely exceeding the average increase. Other sectors like retail might see more conservative adjustments. (Bureau of Labor Statistics)

Organisation-specific predictions: Keep in mind that these are just general forecasts. Specific numbers will vary based on your industry, company size, and location. Here are some predictions from leading organisations:

• Mercer: 3.5% for merit increases, 3.9% for total salary increases (non-unionised employees).
• Payscale: 3.8%, slightly lower than their 2023 prediction.
• SHRM: 3.5% for merit increases, 3.9% for total salary increases.

Key drivers of compensation

1. Inflation’s lingering shadow: Inflation remains a formidable foe, offering employee expectations for raises exceeding inflation rates to maintain purchasing power. Balancing these demands with the company’s financial stability will be a delicate dance.

2. Talent market tightrope: The “Great Resignation” echoes continue, with skilled professionals holding the upper hand. Expect competition for talent to intensify, potentially pushing salaries higher in critical sectors and for sought-after skills.

3. Cost of living variations: Remember, a one-size-fits-all approach won’t cut it. Cost of living differences across regions and cities necessitate location adjustments to your compensation strategy.

4. Industry dynamics: Each industry dances to its tune. Tech and healthcare are likely to get bigger raises, while retail and hospitality might have to tighten their belts. Understanding your industry’s specific trends is crucial.

5. Remote work’s impact: The remote work revolution adds another layer of complexity. Companies hiring globally need to think about pay beyond borders. They might have to ditch fixed salary ranges or adjust pay based on where people live.

The link to your budget: These drivers directly impact your salary adjustment budget. Inflation pushes the floor for increases, talent competition raises the ceiling, and industry norms guide expectations. Considering these factors integrally will help you determine feasible and competitive compensation offerings.

Industry-specific compensation trends

While knowing the general job market is helpful, zooming in on your industry’s pay trends is key for getting the best compensation in 2024. Let’s dive into some key sectors and see where things might land:

Technology “The Talent Magnet”: Buckle up for skyrocketing salaries in tech. This talent-hungry industry remains a compensation leader, likely exceeding the average increase by a significant margin. The insatiable demand for skilled professionals, coupled with high-performing companies flush with cash, fuels this trend.

Expect fierce talent competition, pushing salaries and signing bonuses even higher. Be prepared to offer competitive packages to attract and retain tech talent in 2024.

Healthcare: Healing Wallets: Healthcare joins the high-paying club, driven by an aging population and ongoing talent shortages. Nurses, doctors, and specialists can expect significant increases, particularly in specialised fields like cybersecurity and data analytics. However, smaller healthcare institutions might face budget constraints, leading to more moderate adjustments. Do your research to understand where your specific institution falls within the industry spectrum.

Finance: “Balancing the Scales” Finance is looking for creative solutions to attract top talent while staying efficient. Tightening regulations and economic uncertainties might restrict aggressive increases. However, key roles in areas like fintech and cybersecurity could see higher adjustments to attract top talent. Stay informed about regulatory changes and industry-specific trends to make informed decisions for your finance team.

Retail: Rethinking Rewards: Retail might see more conservative increases, reflecting a competitive but cost-conscious landscape. Automation and changing consumer habits are additional factors to consider. However, roles in e-commerce and omnichannel operations might offer brighter prospects.

Beyond the Norm

Keep an eye on industries undergoing rapid transformation. Clean energy, for example, might offer higher-than-average increases to attract talent crucial for its growth. Additionally, industries facing significant talent shortages, like construction or manufacturing, could see more aggressive compensation strategies to lure workers. Stay ahead of the curve by understanding these emerging trends and tailoring your compensation approach accordingly.

Emerging compensation trends

Pay raises and industry trends are helpful hints, but the way we get paid is about to change in surprising and maybe even game-changing ways. Let’s explore some emerging trends you should keep an eye on:

1. Total rewards take centre stage

Move over, base salary, because benefits and holistic employee satisfaction are becoming key players. Expect to see more focus on flexible work arrangements, wellness programs, career development opportunities, and personalised reward packages. This “total rewards” approach recognises diverse employee needs and preferences, fostering engagement and retention.

2. AI steps up to the plate

Artificial intelligence (AI) is entering the compensation arena, offering tools for data-driven decision-making. Imagine software that analyses real-time market data, identifies pay gaps, and suggests fair compensation adjustments. This data-driven approach can enhance transparency, ensure compliance, and optimise your budget allocation.

3. Remuneration software streamlines processes

Manual compensation calculations are becoming relics of the past. Say hello to remuneration software that automates tasks, simplifies compliance, and facilitates communication about compensation decisions. These tools can save time, reduce errors, and improve the overall employee experience.

4. Personalisation reigns supreme

The “one-size-fits-all” model is going extinct. Expect to see increased emphasis on individualised compensation packages tailored to specific employee needs and contributions. This might involve skills-based pay, performance-linked bonuses, or flexible benefits options. Personalised approaches foster a sense of value and contribute to higher employee satisfaction.

5. Transparency & communication become cornerstones

Gone are the days of secretive salary ranges. Expect increased transparency in pay practices, with companies disclosing salary bands or ranges for open positions. Open communication about compensation fosters trust reduces pay inequities and empowers employees to advocate for their worth.

Impact on future planning

These trends signal a shift towards a more dynamic and employee-centric approach to compensation. Here’s how they might impact your future compensation planning:

• Invest in data analytics: AI-powered tools require reliable data. Ensure you have robust data collection and research capabilities.
• Embrace flexibility: Be prepared to offer varied compensation elements beyond just salary.
• Prioritise communication: Transparency builds trust. Communicate compensation policies clearly and openly.
• Upskill your team: Stay ahead of the curve by equipping your HR and finance professionals with the knowledge and skills to navigate these trends.

Sources:

1. Top Compensation Trends for 2023 – SightsIn Plus
2. 6 Things HR Needs to Know About Employee Compensation in 2023 – Salary.com
3. 9 Trends That Will Shape Work in 2023 and Beyond – hbr.org
4. Compensation Trends to Watch in 2023 – Hrdailyadvisor.blr.com