The Impact of the Economy on 2024 Compensation Decisions

In an economic landscape marked by rising inflation, businesses are facing new challenges in managing employee compensation. The delicate balance between maintaining financial stability and ensuring employee satisfaction has never been more critical. For business managers and HR professionals, understanding and adapting to these changes is not just a necessity but a strategic imperative. Here we take a look at how employers are modifying employee compensation in response to inflation.

Laws Impacting Pay Transparency

Employers around the country are being impacted by new and emerging pay transparency laws. Those that are already open and committed to transparency are navigating the changes well.

As Robert Kaskel, Chief People Office with Checkr says: “We believe transparency around pay ranges is a massively positive development, and we’re very confident in the process. Any leaders worried about pay range transparency already know they’re doing something ‘wrong. If you’re working hard to ensure your people are paid fairly based on the fair market value of their role, you know transparency only solidifies your reputation as an employer.”

That’s clearly important in a labor market where many jobs are still in high demand and competition for top talent remains high.

The Importance of Fairness, Equity, and Transparency

Fairness, equity, and transparency are foundational elements that drive employee satisfaction and retention. As the cost of living continues to rise, employees are increasingly sensitive to how their compensation aligns with their job roles and performance, as well as the compensation of those in similar positions.

“Transparency is one of our core values for a reason,” says Kaskel. “We openly share compensation ranges for every role, level, and location from day one of recruitment. When there are different salary ranges in different areas for remote roles, we communicate the exact range to candidates based on their location as soon as they’re selected for a recruiting screen.”

It’s also important says Kate Conroy, a senior consultant at Red Clover, a strategic HR and change management consulting firm based out of New Jersey, to ensure that employees clearly understand compensation practices and how they’re impacted. “Compensation is most effective when employees understand how and why they are compensated, as well as their growth potential,” Conroy says, adding that she finds it beneficial to be transparent with pay ranges and compensation philosophy.

“Instead of just providing employees with the raw data, I release this information in an educational format, teaching employees how their compensation structure functions and why we’ve built it this way,” Conroy shares. “This provides employees insight into how their behaviors influence their compensation. It gives them a degree of autonomy and control over their earning potential and also motivates their behaviors that contribute to the success of the business.” That, she says, provides “a true win-win situation.”

To ensure success, compensation structures need to be both equitable and based on employee contributions. “When building and reviewing salary structures, I test for equity among employees in similar positions as well as how our salaries compare to the larger market,” Conroy says. “Increases and promotions must be based on measurable performance, rather than who is most well-liked.”

When the News Isn’t Good News

Transparency is especially important when salary news isn’t good news. Keca Ward, an HR expert with Human Resource, shares that “at the peak of the inflation in 2022-2023, our company reviewed the salary and benefit structure and adjusted it to improve employee well-being.” Those improvements, she says, “took a toll on our finances, given that we also needed to improve other areas to drive sales in inflation.”

Consequently, no further adjustments are anticipated for 2024. “Because we believe that our salaries and benefit offers are competitive enough, we will be sustaining them for new hires,” Ward says.

Importantly, even when pay boosts aren’t forthcoming, it’s important to maintain transparency, Ward says. “Our best practice involves keeping the structure flexible and transparent enough for all employees to feel recognized and for us to make changes if need be.”

Addressing the Impact of Inflation

“These days, salary and pay transparency is not optional, it’s a must,” says Max Wesman, founder and COO at GoodHire. But, he says, it’s not necessary to share exact figures—salary ranges are fine and help to “maintain a level of opacity.” However, he adds: “any other approach is doomed to fail in my experience.”

At GoodHire, says Wesman, “we practice full transparency when it comes to wages and wage adjustments, and any changes in salaries for new hires result in raises for others who fill the same position.” That doesn’t work the opposite way, though, he adds: “The one thing we try not to do is decrease our existing employee’s wages in opposite situations.”

GoodHire is taking into account factors like inflation, labor market trends, demand, and new laws and regulations as we head into 2024. This means making changes internally as well as making adjustments for new hires, he says. “As a company that has already been on top of these trends for the past two to three years, we’re primarily making balancing changes to make sure we haven’t missed anything.”

Navigating Tricky Terrain

Ongoing communication is critical whether salaries are staying the same, increasing—or decreasing.

“Talk to your team regularly,” Kaskel advises. “Don’t wait until your next round of performance reviews to ask your team how they feel about compensation—conduct surveys regularly so you always have an updated feel for their sentiment.”

While general communication channels can be used as part of an overall communication efforts, salary is personal, so it’s important to also incorporate one on one outreach.

“Dig deeper into one-on-ones to find out where you can help your team the most,” Kaskel says. “Some employees might value straight compensation, while others may prioritize better benefits packages to help relieve the financial pressures that have grown elsewhere.” In addition, he suggests: “Create a safe space for your people to tell you about their financial struggles and take those needs to heart. With virtually every expense rising drastically over the last few years, leaders must diligently work to help their people out of financially tough spots.”

Finally, Conroy, advises, avoid making long-term decisions based on temporary circumstances, Conroy cautions. Things outside of the business’s control, as well as the employee’s control, can have long-term consequences for your business, she says, Instead, she recommends, “consider addressing employee cost of living during high inflation periods with a one-time bonus.” This, Conroy says, “provides employees with the support they need while mitigating financial risk for the business.” If economic conditions persist long-term, “then consider shifting the compensation structure in the context of a larger conversation about your operating budget.”

How inflation and a potential recession will impact pay decisions in 2024 remains to be seen. For now, though, employers and experts agree—communication and transparency are key to ensuring engagement as well as a pipeline of talent for open positions.

Lin Grensing-Pophal is a Contributing Editor at HR Daily Advisor.

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