Navigating Compensation Planning in 2024: Strategies for Salary Reviews and Raises

In today's ever-changing labor market, understanding compensation is crucial for organizations aiming to stay competitive. As we approach 2024, real wage growth emerges as a vital concept, with projections indicating a 3.5% increase in overall wages in the U.S.  To navigate this landscape successfully, organizations must engage in both short- and long-term compensation planning. Here are key considerations for salary administration in the coming year.

Salary Administration: A Continuous Effort

While organizations invest time and resources in setting initial salaries and creating salary structures, ongoing salary administration is often overlooked. To stay competitive, regular salary reviews are essential, especially when facing recruitment or retention challenges. Market pricing and consistent reviews can unveil salary compression, pay equity issues, and other critical aspects.

Periodic reviews of salary ranges and structures are crucial, given the dynamic nature of the job market. Organizations that anticipate future salary expenditures often prepare annual salary budgets, encompassing performance-based and across-the-board salary increases, adjustments for pay inequities, and anticipated payouts under bonus and incentive plans.

Types of Salary Increases

Once the foundational salary administration activities are in place, organizations can focus on different types of salary increases that impact employees:

• Pay for Performance or Merit Increases: Awarded for achieving measurable criteria, these increases are often scheduled at the end of the year or on an employee's service anniversary. However, challenges arise when low salary increases make it difficult to distinguish between top and average performers.
• Across the Board Increases: Given to all employees based on the organization's past performance, these increases are usually a percentage of the base salary. While simple, they may perpetuate existing pay inequities within the organization.
• Longevity or Length of Service Increases: Solely based on an employee's tenure, these increases lack a performance component and are common in government and education sectors.
• Cost of Living Adjustment (COLA): Linked to the rise in the cost of goods and services, COLA increases aim to maintain employees' purchasing power. However, the effectiveness of this type of increase diminishes with differences in local and regional pay markets, exacerbated by the rise in remote work.

As organizations gear up for 2024, a comprehensive approach to compensation planning will be essential to attract, retain, and motivate talent in a challenging labor market. Regular reviews, strategic budgeting, and a nuanced understanding of various salary increase mechanisms will position organizations for success in the evolving landscape of employee compensation.

Join AAI to get the support you need to market yourself and your independent agency to your target audience, including access to top insurance providers with insurance options for every independent agent. Contact us today for more information.