Top trends in compensation

For the third year in a row, median raises are sticking high at 4%.  

That’s what Salary.com found in its Annual National Salary Budget Survey. That 4% number is also blanket across the employment spectrum, from hourly employees through executives.  

David Turetsky, vice president of compensation consulting at Salary.com was surprised raises have stayed at 4%, especially for a third consecutive year. “Typically after you get a big year, it will retract a little,” he said. But that hasn’t been the case in recent years.

Why 4% is sticking 

Median salary ranges have stayed high because the worker shortage brought on by the pandemic hasn’t completely gone away. “I don’t think we’ve left the world of competitiveness in the war for talent,” he said. That’s true even as unemployment rose to 3.8% in September, where it was down to 3.4% in January and April 2023. 

“It’s still a little bit hard to find people to fill open positions, so in order to maintain that right balance of talent retention, as well as making sure you’re not pricing yourself out of the market in different ways, companies need to increase their compensation budgets,” he said.  

Lori Wisper, managing director at Willis Towers Watson, said that raises, with the exception of a severe downturn like the Great Recession, are also slower to change in tune with current economic conditions. “They’re not as elastic so they don’t go up and down as much,” she said, which means higher raise rates may stick around. 

What to know for compensation planning 

Of course, 4% is a median number, and not all raise rates will be the same for all jobs in all locations. It depends on the company, and what kinds of workers are hardest to find. 

“If the supply and demand of labor in the markets in which they compete for talent says you need to raise pay by 4% and they’re only raising it by 2%, they’re likely to lose people,” Wisper said.  

However, giving blanket high raise rates to everyone, especially for companies with a lot of people in different locations, is a recipe for overspending, and future layoffs, Wisper added, which she said was a factor in batches of tech layoffs earlier this year.  

Instead, companies should plan compensation wisely; examine who is being paid what, and what they’ll need to be paid to stay and attract more workers like them, experts said. It’s also not as easy as saying it shouldn’t be a problem because a company pays based on performance. “Look at the jobs that are critical to you and ensure that you’re taking care of people in those jobs,” Wisper said.  

Another tactic if money is short for raises across the board — and 4% raises are imperative to keeping a business open — is for executives to be offered a lump sum instead of a salary increase, said Turetsky. 

The 4% future 

The 4% number may go down in the future, but not by much — at least not immediately, which should be factored into future compensation planning, experts said. 

Wisper said a few elements are at play, including that unemployment is still very low. Even though the great resignation has largely ended, there’s still a worker shortage, and automation hasn’t yet been able to make a dent. And while legal permanent and temporary immigration have started to rebound after pandemic-era lows, it’s still not enough to have a major impact, she added. 

Turetsky said that instability will be a factor in median raise rates in 2024, including any Federal Reserve moves on interest rates, any changes in inflation and a looming U.S. presidential election. “HR managers need to get beyond this year end, and it’s kind of listen, wait and see,” he said. 

While the imperative for salary transparency is clear in states that have passed such laws, that openness is mostly optional for employers throughout the rest of the U.S. Still, salary transparency has increased nationally, even in states without mandates on the books, according to the National Women’s Law Center. 

NWLC combed through “extensive” Glassdoor data, which included job listings posted from March 2022 to December 2023. The analysis of employer-provided salary information, filtered by industry, revealed that “pay disclosure increased over time among all selected states — even among those without pay range transparency laws.” 

The aerospace, biotechnology, defense, financial services and pharmaceuticals sectors had the lowest rates of pay transparency. In pharmaceuticals and biotech, 48.6% of job listings disclosed salaries in states with strong transparency laws. Only 15.9% of jobs in states with weak laws disclosed the salary.

Meanwhile, HR and staffing jobs had the highest rate of salary transparency: 81.4% of listings in states with strong laws shared the job’s salary range, with 74.3% of listings in states with weak laws still sharing salary ranges.

In states with zero salary transparency laws, almost 75% of HR job listings still had a pay range posted. 

NWLC researchers said it was “notable” that states without disclosure laws showed an increase in transparency and indicated “that some employers are proactively jumping on the pay transparency bandwagon — even without a legal obligation — because they see it as a benefit for their businesses to attract and retain top talent.” 

As the law center notes, Colorado was first to require salary ranges in job descriptions — with California, New York, Washington, and Washington, D.C., following after it, and Virginia waiting for the Governor to ratify the law the state legislature passed. 

While Connecticut, Maryland, Nevada, and Rhode Island also have salary transparency laws, these states require pay ranges to be disclosed at some point in the interview process — not necessarily in the job listing.

Naturally, NWLC observed an uptick in transparency in listings due to laws being passed.

“Between March 2022 and December 2023, the share of job listings with pay disclosure rose by 67.0% in D.C., 31.9% in Maryland, 25.9% in North Carolina, 25.2% in Georgia, 24.6% in Virginia, 24.1% in Maine, and 19.8% in Michigan,” researchers noted.

”We’re witnessing an exciting cultural shift as pay information emerges from a black box,” NWLC Chief Program Officer Emily Martin said in a statement. “Pay disparities thrive in secrecy.” 

Martin added that providing that openness helps level the playing field, “especially for women and people of color who are more likely to be shortchanged in pay negotiations.”

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Although more states are requiring employers to include compensation in job ads, the trend of using wide pay ranges could deter applicants and hurt recruitment, according to a study from Washington State University.

For example, in an ad with a large pay range of $58,100-$152,500, study participants expressed cynicism and a lack of trust, with some calling the range “dishonest,” “disingenuous,” and “ludicrous.”

“It’s not just a choice between including a pay range or not — how compensation information is communicated matters, and at least in this study, having a very wide range might send a negative signal to potential applicants,” Kristine Kuhn, the study author and a researcher at the WSU Carson College of Business, said in a statement.

The study, which was published in the Journal of Applied Psychology, included three different experiments to understand people’s reactions to “highly ambiguous” pay ranges. In each experiment, participants saw ads with different ranges — some with a wide gap of $50,000 or more and some with a narrow gap of $10,000 — and expressed their perceptions of the employer.

Overall, the study participants were more likely to respond negatively to job ads with wide pay ranges and see employers as less trustworthy. The trend applied across a variety of study participants, including college students, college graduates and recent job searchers.

Participants also seemed to react differently based on how the wide pay range was explained. For instance, if the wide pay range included a statement that said the amount would depend on the job candidate’s qualifications, participants were even less attracted to the company. However, if the job ad included a more objective explanation and said the amount would depend on the candidate’s geographic location, participants had better impressions of the employer.

“There probably is a goldilocks area of a just right pay range where it gives the employer some flexibility without sending negative signals to prospective applicants,” Kuhn said. “Also, while from a legal standpoint they may be required to advertise an expected pay range, employers and job candidates can still negotiate.”

About half of U.S. job postings on Indeed now feature pay transparency, according to Indeed data from August, which was the highest percentage recorded so far. The number is expected to trend upward as more states and cities enact pay disclosure laws.

In general, pay transparency improves employee retention rates and reduces turnover, according to a Payscale study. To increase clarity around compensation, companies “must also communicate how pay is determined, why it is competitive to the market and how it can be progressed,” according to the report.

Pay transparency principles are particularly important when current employees see their roles advertised in job posts. Employers should be prepared for employees to ask questions and be able to discuss compensation decisions while both attracting and retaining talent.

Employers may consider paying workers who work on site or in an office more than those who work at least part of the time remotely, but other factors are typically prioritized over work location, sources told HR Dive.

HR association WorldatWork generally has not seen employers offering higher base pay for on-site workers — at least, not solely because employees work in an office rather than from home, said Marta Turba, VP, content strategy. The reality, she said, is much more complex.

“It’s more common for compensation philosophies to be based off of geography,” Turba continued. For example, a technology company with offices in cities with a higher cost of living might adjust pay for workers who move away from those areas to work remotely. Employers also may consider stipends for employees who work in-office to help with costs related to commuting, food, transportation and caregiving.

Reports of organizations offering higher pay for in-office work have been sporadic in recent years. A March 2022 BBC report cited Stanford University economist Nicholas Bloom, who told the outlet that employees who returned to offices could receive pay increases of between 5% and 10%. Some employers incentivized return-to-office strategies in other ways; CoStar Group, a real estate information firm, offered a new car and all-expenses-paid vacations to entice employees, The Wall Street Journal reported in 2021.

But work contribution, not work location, is often a more significant factor in compensation plans, according to Turba. “Employers should be thinking of compensating their workforce in a fair and equitable way, and usually that comes down to what somebody’s contributing rather than the work structures around it,” Turba said.

A 2023 Payscale report found that 72% of organizations factored performance into pay increase decisions in 2023, with 67% saying they accounted for market adjustments and competition for talent and 54% citing inflation and cost of living as considerations.

Perceptions of on-site work influential

Still, there are several perceived advantages to on-site attendance in research. For example, a 2021 Gartner survey — the results of which were shared in an email with HR Dive — found that 68% of leaders said they believed on-site workers outperformed remote workers, while 80% of executives and managers said they believed that in-office workers were more likely to be promoted than remote workers.

Employees may feel similarly about on-site work. More than half of U.S. respondents to a 2022 American Staffing Association survey said they believed that employees who worked exclusively in-office had a competitive advantage over fully remote workers in areas such as bonuses, raises and promotions.

But such perceptions may not prove accurate when examining actual worker performance. Over the last couple of years, Gartner data “has really shown that people can be just as productive in a hybrid setup if not more so,” said Caitlin Duffy, research director for the firm’s HR practice.

“Employees thrive in different environments and settings,” Duffy added. “By allowing people to choose what setting they’re working in, you can unlock the potential and personality of people with different workstyles to do their best work.”

Similarly, a 2024 Mercer report found that, among organizations that have embraced fully flexible work policies, increased productivity was a “main driver” in those decisions. Mercer also found that 64% of workers said they were more productive when they worked remotely.

Among more than 100 of the largest companies in the U.S., Target and Starbucks received perfect A+ scores for comprehensive disclosures of median and adjusted pay gaps and annual commitments to conduct and publish pay equity analyses, according to the seventh annual Racial and Gender Pay Scorecard by Arjuna Capital, Proxy Impact and DiversIQ.

While 28% of companies received “A” or “B” scores for their efforts, 44% of companies earned an “F” for failure to disclose racial and gender pay gaps, including Alphabet, Berkshire Hathaway, Boeing, Coca-Cola, Costco, CVS and Netflix.

“Companies are embracing a more transparent, comprehensive approach to pay gap reporting — a shift that goes beyond lip service to create real and lasting change,” Natasha Lamb, lead author and chief investment officer at Arjuna Capital, said in a statement. “Through their equal pay ambitions, smart companies are capitalizing on key performance benefits — gaining a competitive advantage in recruiting and retaining top talent and improving leadership diversity.”

In a review of 128 companies, the 2024 report found a 12-fold increase in the number of companies reporting quantitative pay gap data since 2016. About 53% of companies on the Scorecard — chosen among the 100 largest U.S. companies and companies engaged by investors on the topic — disclose data, as compared to only 25% of the S&P 500.

The financials/real estate investment trust sector leads in disclosure, at 68%, followed by the consumer sector at 56%. On the other hand, only 25% of companies in industrial/materials sectors and 20% in energy/utilities sectors are disclosing data. 

As a first step, companies should analyze their current pay structures and disclose any racial and gender pay gaps, according to the report. Full disclosures can include adjusted and unadjusted pay gaps, pay components, methodology used in pay gap analysis, and policies and actions to address gaps.

Employers may keep in mind that labor supply imbalances — not just participation rates — may fuel wage gaps in some industries, according to a report from S&P Global Ratings. Addressing these imbalances by tackling biases or structural impediments could help reduce wage gaps.

For instance, women in science, technology, engineering and mathematics (STEM) fields say representation has increased but gender wage gaps and promotion biases persist, according to a report by MyBioSource. Mentorship and transparency can help.

In addition, while pay transparency may narrow pay gaps, it may not close them entirely, according to a study by University of Delaware researchers. Other factors, such as aggressiveness, competitiveness and social comparison, can affect how job candidates approach pay discussions during the hiring process.

Seventy-one percent of senior finance leaders planned raises of at least 4% for 2024, outpacing inflation in most areas, according to the results of a survey by Gartner, Inc. The majority (58%) said they intended to raise compensation by between 4% and 9% this year.

Compensation ranked second among the areas where leaders said they planned to increase budgets this year, beaten only by technology investments, which were a priority for 82% of the 296 CFOs and senior finance leaders surveyed in December. However, fewer leaders intended to award raises of 10% or more, the survey found. 

“Even with tighter economic policy and pressure from boards and investors on profitable growth and employee productivity, CFOs are outpacing inflation that has now almost returned to a neutral rate below 3%,” Alexander Bant, chief of research in the Gartner finance practice, said in a statement. “The fact that most CFOs are planning for pay growth that exceeds the level of inflation indicates how tight the labor market is right now and how important it is to find and retain top talent.”

The sentiments expressed in the Gartner finance survey, however, contrast with the results of recent worker surveys. 

Fifty-three percent of U.S. adults said their paycheck isn’t keeping up with inflation, according to survey results released last month by the American Staffing Association and The Harris Poll. Of the nearly 2,100 people surveyed, 38% said their financial position is more stressful than it was a year ago. 

And, in January, job search site Monster’s 2024 Work Watch Report found that 81% of workers said their current wage hasn’t kept up with the cost of living. Relatedly, an Eagle Hill Consulting analysis predicted that retention would be a particular challenge for employers in the first half of 2024, with more workers projected to quit from January through June.  

But workers who felt cared for by their employers are 60% more likely to plan to stay at their current organization for the next year, according to the recent results of financial services company MetLife’s 22nd Annual U.S. Employee Benefit Trends Study.