In a world where the job market undergoes frequent fluctuations, understanding the dynamics of compensation best practices is crucial for staying balanced and staying ahead of the curve. Let’s look at some of the key complexities and challenges of managing compensation to give you a roadmap for success in these uncertain times.
The uncertain labor market and its impact
According to Payscale’s 2024 Compensation Best Practices Report (CBPR), 50% of organizations say they anticipate that compensation will be the biggest challenge they face this year, likely due to the implications of the ‘Great Resignation,’ economic turbulence, and a mismatch between labor supply and demand.
The rise of hybrid work, the growing role of AI (Artificial Intelligence) in the hiring process, and the rise in pay transparency legislation all present additional complexities for HR and compensation professionals as well.
Importance of compensation strategies and transparency
So how can HR teams and comp pros stay ahead in these turbulent times? Having thoughtful and data-supported compensation strategies is a crucial part of managing these many challenges. Given the constant evolution of today’s landscape, regularly revisiting these strategies to ensure alignment with market changes and company requirements is also key. For this reason, many top-performing organizations now bundle any necessary updates to their strategy into the annual planning process.
Consider pay increases as one example. Per the CBPR, 79% of organizations plan to offer pay increases in 2024. Although giving pay increases to keep pace with inflation and cost of living and to reward performance can be an effective talent strategy, there are pitfalls to watch out for. One of these is pay compression, which is when recently hired employees make the same or similar wages as those with a longer tenure or a higher position within the same organization.
While increasing wages for any underpaid employees may support retention and ensure legal compliance, the resulting pay compression could lead to talent loss on the other end due to perceived unfairness. It’s one reason why regularly evaluating salary ranges and strategically creating room between these ranges can be so important. Processes like these can and should be part of regular pay strategy evaluations.
Indispensable tools for effective compensation strategies
With so many changes to keep up with and pitfalls to avoid, spreadsheets and manual processes are no longer enough for compensation professionals who want to stay on top of it all. Increasingly, they’re turning to compensation technology to keep pace. As this year’s CBPR reflects, organizations that use purpose-built compensation technology like Payscale are more likely to have mature compensation practices — which are characterized by elements like a detailed compensation philosophy, formal pay structures, reliable data sources, and consistent pay processes.
Transparent pay communications are another component of mature compensation practices that can be a game-changer for organizations. While achieving total pay transparency is a process that takes time, consistent baby steps in this direction can help employers build trust, improve retention, and work toward equitable and transparent pay across the organization. Examples of these steps include sharing employee pay ranges and other critical information earlier, backing up pay decisions with data, and committing to continued efforts to eliminate bias in compensation practices.
Your road map for facing comp challenges in 2024
Navigating the complexities of compensation today isn’t easy, but you don’t have to go it alone. If you’re ready to leverage the insights of the 5,000+ comp professionals who participated in the 2024 CBPR, download our Quick Guide. It contains a digestible action plan to help you get the most out of this invaluable resource so you can face comp challenges head on and strategically plan for the future.
Learn more about the report and how to use its data in this Quick Guide.
