How employers are managing compensation challenges in 2023
Many employers are facing challenges in finding the right compensation levels for their employees in 2023, as higher pay is becoming essential for attracting and retaining talent. According to a recent SHRM article, here are some of the strategies they are employing:
Higher Than Expected Pay Increases
Data from consulting firm WTW shows that 70 percent of U.S. employers spent more than they expected to adjust employees’ pay levels last year. In general, compensation budgets are continuing to increase faster than they have in at least 15 years. WTW projects salary increase budgets will grow by an average of 4.6 percent in 2023.
Off-Cycle Pay Adjustments
Employers are making off-cycle pay adjustments to address pay equity and pay compression issues, in addition to making market adjustments for jobs in certain in-demand fields. Getting the right level of base pay is necessary as it is the “table stakes that just allows you into the game,” according to Lori Wisper, managing director with WTW.
Compensation Risk Management
Managing compensation in this environment is about avoiding losses, as the risk and cost of losing workers may be greater than the cost of increasing their pay. Employers can either find ways to reduce the cost of replacing employees or adjust pay upward when the market demands it.
Transparency and Communication
Employers are increasingly having conversations with employees about how and why they make pay decisions, especially as pay transparency laws are becoming more widespread. Front-line managers and HR professionals throughout the organization are important points of contact for employees with compensation-related questions.
Rethinking Compensation Philosophy
An organization’s compensation philosophy can be an important tool for guiding pay decisions and communicating the reasons behind those decisions. An updated compensation philosophy could state what the organization considers to be competitive pay and how it will manage pay compression and identify and pay for critical skills and positions.
Regular communication about the compensation and total rewards philosophy is necessary to build trust and understanding among employees and make the most of what the employer offers. Communication should happen not only when recruiting employees but throughout their tenure.
Compensation studies are one of our specialties. We have deep experience with base compensation benchmarking, incentive program development, and total rewards. Check out our updates on workforce strategy and compensation or contact us for other helpful resources.