February 27, 2024
Wage rates and competitive salary benchmarks are always evolving. For example, in 2023, we saw increases in the 5 to 6% range while salary increases for 2024 are projected to average 4%. While that sounds like a losing proposition for workers, it’s actually not; because 2024 inflation is projected to be approximately 2.8%, a wage growth rate of 4% would exceed inflation for the first time since 2020.
Consider this: Prior to that Pandemic period, there were many years where wage increases exceeded inflation. This creates wage growth. Unfortunately, when inflation rates are higher than salary increases, employee buying power declines. So, the gains projected for 2024 will be a good start toward reversing the Pandemic years … but it will only begin to close the gaps. “Real” wage growth will continue to lag because employees are still feeling the effect of prior years’ higher prices, and for some, more debt.
Wage Growth Strategies
While workers can seek higher wages – either from their current employer or elsewhere – it’s ultimately up to employers to provide market-competitive pay increases so they can continue to attract and retain employees. Once employers complete their market compensation studies, what can (and should) they do next? Here are some strategic options for employers:
- Do nothing. Maintaining the status quo is always an option – though likely a disappointing one for workers. Even without raising wages, however, employers can legitimately inform employees they now have more room to grow in their pay ranges because the top end has increased. Nonetheless, without actual salary increases, employee retention may become challenging.
- Increase all employees a flat percentage relative to the amount of change in the broad market data. For example, employers could give all employees a 2% market adjustment. This adjustment would be separate from any increases for merit or promotions.
- Move all employees in the same job by the percent of pay change that has occurred in the market for that position. For example, all Accounting Clerks would get a 5% market adjustment. Market rate increases can vary from position to position, but even with person-to-person disparities, workers would keep pace with market realities for their specific job.
- Move all employees to the same “comp-a-ratio” they had prior to the new pay ranges. Thus, if an employee was at 93% of their old midpoint, and market changes mean they are now at 88% of their new midpoint, provide the employee the increase needed to take them back to 93% of the new midpoint.
- Only make adjustments for employees who are now below 100% of midpoint, and make each adjustment according to #2, #3, or #4 above.
Beyond these wage increase strategies, employers must consider a few things when deciding what to do.
- What can the organization actually afford to do?
- What is the employer’s philosophy on compensation positioning coupled with difficulties they may be experiencing when trying to attract and retain employees?
- Does the organization want to strengthen their pay position to market and create real wage growth that employees have not had in recent years? In other words, does the organization actually want to help employees overcome the gaps?
The Bottom Line:
Compensation studies have shown a lot of pay movement from 2021 to 2023, so it can quickly create pay disparities to market. If you have not completed a recent pay study, we highly recommend you do so in the coming months so you can be better positioned attract and retain employees.
Whatever an employer decides to do with their updated market compensation data, it is important to continue to do market studies and update pay ranges so the organization does not fall too far below market and perpetuate insurmountable gaps.
Contact us today at 317.589.8529 to discuss this or any other employee compensation consulting need you might have. We’re here to help!
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees, and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.