Your compensation strategy affects how well your organization is able to recruit and retain top talent, but your strategy doesn’t play out in a vacuum. Competition trends will affect your organization’s approach, whether you’re a small business or a large nonprofit. Keeping a pulse on these trends can help you fine-tune your own strategy in the larger context of what is going on in the economy.
As we head into 2024, the projections regarding the future economy and its impact on compensation budgets remain unclear.
To help you stay in the know, we’ve curated and interpreted the most up-to-date compensation trends your organization should know about, including:
- Base Pay Trends for 2024
- What’s New With Variable Compensation in 2024
- What Executive Compensation Will Look Like in 2024
- Benefits Organizations Are Prioritizing in 2024
- 6 Resources for Keeping Up With Compensation Trends
- Astron Solutions’ Compensation Philosophy: Total Rewards
We’ll also provide our own perspective and recommendations for your organization to keep in mind based on the work we’re doing with our clients to navigate these trends.
Even if some trends don’t pertain to your organization at its current capacity, they’re still good information to have and can prepare you to scale up your operations in a sustainable way when the time comes. Let’s take a look at what is currently going on in the realm of compensation.
Base Pay Trends for 2024
As your organization budgets for base pay adjustments in 2024, you’ll need a strong understanding of the health of the U.S. economy. Here are some things to keep in mind.
Different Forecasts for the 2024 U.S. Economy
The following are the most current economic forecasts, which may or may not clear up a seemingly cloudy 2024:
According to Kiplinger:
- The big question: Is a recession coming, or not? Interest rates have soared, and short-term rates are much higher than long-term rates, a classic recession indicator. And yet, the economy keeps chugging. Can that last?
- If a recession hits, it’s likely to come later than we and many forecasters once thought. The second half of 2023 seemed like a good bet.
- The first half of 2024 may see a downturn. Probably no sooner than that. Why not? Unlike in prior cycles of rising rates, the steep hikes implemented by the Federal Reserve are doing little to slow the economy so far.
- Normally, higher rates quickly curb demand for houses and automobiles since they are typically financed. Declining sales lead to layoffs in home building and manufacturing, spooking consumers into spending less. Soon, a general dip in spending leads to a recession.
- Now, demand for cars and houses is up, in spite of higher interest rates. Pent-up demand for cars dating back to the pandemic is still there. And since few homeowners are putting their homes on the market, opting to hang on to super low mortgage rates scored during COVID-19, the market for new homes is heating up.
- Builders are busy and hiring more workers if they can, not firing. More generally, service businesses are doing well, and they’re still hiring.
- Consumers appear OK. They still have $533 billion in extra savings built up during the pandemic. Their cash balances have been dwindling but should still last well into 2024. Delinquencies on credit cards, car loans and other debt are ticking up, which may be a warning sign, but it’s too early to say how serious it is.
According to The Conference Board:
- The Conference Board forecasts that the growth seen in many parts of the economy will gradually buckle under mounting headwinds later this year, leading to a very short and shallow recession. We forecast that real GDP growth will slow to 1.9 percent in 2023, and then fall to 0.5 percent in 2024.
- Following a period of renewed strength in early 2023, consumer spending growth has slowed in recent months. However, despite numerous headwinds associated with inflation and interest rates, US consumers have not closed their wallets altogether. Thus, we forecast that overall consumer spending will grow in Q3 2023 but anticipate a contraction in Q4 2023 and Q1 2024. As inflation and interest rates abate in 2024, we expect consumption to begin to expand once more.
- Meanwhile, following weak growth in Q1 2023, business investment bounced back in Q2 2023 despite interest rate increases. Residential investment, which is highly sensitive to Fed policy, has already contracted significantly as interest rates have climbed. We don’t expect a recovery in this sector until rates begin to fall next year.
- Government spending represented one of the few positive growth drivers for 2023 as federal non-defense spending benefited from outlays associated with infrastructure investment legislation passed in 2021 and 2022.
- On inflation, we expect to see progress over the coming quarters, but the path will probably be bumpy. We expect year-over-year inflation readings to remain at about 3 percent at 2023 year end and that the Fed’s 2 percent target will not be achieved until the end of 2024.
- Labor market tightness will moderate somewhat over the coming quarters but will remain acute relative to previous economic downturns, reflecting persistent labor shortages in some industries and labor hoarding in others.
- Looking into 2024, we expect the volatility that dominated the US economy over the pandemic period to diminish. In the second half of 2024, we forecast that overall growth will return to more stable pre-pandemic rates, inflation will drift closer to 2 percent, and the Fed will lower rates to near 4 percent. However, due to an aging labor force we expect tightness in the labor market to remain an ongoing challenge for the foreseeable future.
An Alternative Economic Indicator: The Cardboard Box
While there are many experts that voice their opinions regarding how the economy will play out in 2024, there is one often overlooked economic indicator that has been very consistent in predicting how strong the economy will be year after the year—the Cardboard Box Economic Indicator.
Most, if not all, durable goods manufactured in the U.S. are shipped in cardboard boxes. This industry must be ahead of the curve to be sure that the cardboard containers are available to meet the projected demands of the manufacturers.
Here are some Cardboard Box insights from AnythingResearch, updated as of August 2023:
- The Setup Paperboard Box Manufacturing industry is experiencing several key trends that are affecting its growth and sustainability. First, the industry is seeing a shift towards sustainable materials as consumers become more environmentally conscious. This trend has led to an increase in demand for recycled paperboard and other sustainable packaging solutions.
- Second, digital transformation is changing the way that companies in the industry operate. More manufacturers are adopting digital tools and technologies such as 3D printing and advanced software to streamline production and increase efficiency. This trend is helping to improve quality control and reduce production costs.
- Third, the industry is experiencing consolidation as larger players acquire smaller manufacturers to expand their presence in the market. This trend is leading to increased competition and price pressures for smaller manufacturers who are struggling to remain competitive.
- Fourth, e-commerce is driving demand for more customized packaging solutions. This trend is leading to an increase in digital printing technologies and other advanced customization options that allow manufacturers to cater to the unique needs of businesses and consumers.
- Finally, the industry is facing ongoing labor shortages as the manufacturing workforce ages and younger generations are less interested in pursuing careers in manufacturing. This trend is leading to higher labor costs and increased competition for skilled workers. To address this challenge, many manufacturers are turning to automation and other technologies to reduce their reliance on human labor.
The Impact of the annual COLA adjustment for Social Security
According to the AARP:
- “Current projections are for inflation to tick up slightly in August and then again in September,” says Emerson Sprick, senior economic analyst at the Bipartisan Policy Center. He estimates the 2024 COLA will land at about 3 percent. That would boost the average Social Security retirement benefit — $1,837 a month in June 2023 — by about $55 a month in 2024.
- It would also mark a significant shift from the past two years, which saw COLAs of 5.9 percent and 8.7 percent, the biggest benefit adjustments in percentage terms since the early 1980s. The inflation-fueled increases raised the average retirement benefit by $92 in 2022 and $146 this year.
- Other analysts, including Preston Caldwell, a senior U.S. economist at Morningstar; Alicia Munnell, director of the Center for Retirement Research at Boston College; and Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, say they expect a 2024 COLA of around 3 percent.
Summary of 2024 Salary Adjustment Predictions
According to a recent Willis Towers Watson survey qouted by SHRM, employers are planning to budget an employee average increase of 4 percent in 2024. Here are some other notable findings:
- This 4 percent increase is down from the 4.4 percent in 2023 and the 4.2 percent increase in 2022, but the projected 2024 figures remain higher than the 3.1 percent salary increase budget in 2021 as well as other increases in pre-pandemic years.
- Although the survey is an early forecast of next year’s pay strategies, it also provides further clarity into how and why companies budgeted for raises in 2023. The survey found that more than two-thirds (70 percent) of U.S. employers budgeted for pay raises to be either the same or higher in 2023 than 2022. Roughly 1 in 6 companies (14 percent) have budgeted for pay raises to be lower than last year.
According to Payscale:
- 78% of organizations in the United States and 81% in Canada say that their 2024 salary increase budget is the same as or higher than compared to last year.
- 2024 pay increases are predicted to be 3.8% on average in the United States
- Pay increases were 4% on average in the United States in 2023, up from 3.8% predicted in 2022.
According to WorldatWork:
- U.S. employers anticipate 2024 pay raises to remain high as labor market challenges continue, according to WTW’s latest “Salary Budget Planning Survey.” The survey found employers are budgeting an average increase of 4% in 2024. Though down from the actual increase of 4.4% in 2023, the number remains higher than the 3.1% salary increase budget in 2021 and years prior.
- Organizations are taking a broader view to address the labor market and inflationary pressures. That includes a broader emphasis on DEI, increased workplace flexibility, improving the employee, and changes to health and wellness benefits, compensation, and training.
Astron Solutions’ Perspective
2024 economic trends remain cloudy, at best. The key to compensation projections is the labor market. If unemployment remains below 4%, we anticipate employers having to maintain robust compensation budgets, and anticipate 3.5% to 4.5% compensation budgets for 2024. In addition, the demand to increase the current unofficial minimum wage levels (now between $18 and $22 per hour across the country) and increased pressure for career advancement by Gen Z (and soon to join them Gen Alpha), many employers may find that they will need to earmark an additional 1% to 2% in their compensation budgets to address these issues.
What’s New With Variable Compensation in 2024
Variable compensation can be a powerful aspect of a compensation package. Here is some information to take into account as you draw up your vision for variable compensation in 2024.
Issues that Are Impacting 2024 Variable Compensation Planning
While 2024 base pay projections tend to be the primary focus for compensation budgeting, we cannot lose sight of the importance of variable compensation planning. This summary includes elements of effective variable compensation programs along with insights into creative planning for 2024.
Elements of Successful Variable Compensation Design and Planning (The HR Digest)
SETTING GOALS AND OBJECTIVES
The first step in designing a variable compensation structure is to set clear goals and objectives. These goals should be aligned with the organization’s business strategy and values, and should be achievable but challenging. It is essential to communicate these goals clearly to employees so that they understand what is expected of them and what they need to do to earn their variable compensation.
CHOOSING THE RIGHT METRICS
Once the goals and objectives have been set, the next step is to choose the right metrics to measure employee performance. These metrics should be tied directly to the goals and objectives, and should be measurable, objective, and relevant. It is also important to consider the potential unintended consequences of using certain metrics, such as encouraging short-term thinking or unethical behavior.
BALANCING SHORT-TERM AND LONG-TERM GOALS
Another challenge in designing variable compensation structures is balancing short-term and long-term goals. While it is important to reward employees for achieving short-term goals, such as hitting sales targets or meeting project deadlines, it is also essential to incentivize behaviors that contribute to the organization’s long-term success, such as innovation and collaboration. One way to balance short-term and long-term goals is to include a mix of short-term and long-term incentives in the compensation structure.
ENSURING FAIRNESS AND EQUITY
Variable compensation structures also must be fair and equitable. This means that all employees should have an equal opportunity to earn variable compensation, and the compensation should be commensurate with their level of contribution to the organization’s success. It is also important to avoid biases in the compensation structure, such as gender or racial biases.
PROVIDING CLEAR COMMUNICATION
Finally, effective communication is critical to the success of variable compensation structures. Employees must understand the compensation structure, the metrics used to measure their performance, and how they can earn variable compensation. Clear and timely communication can help to build trust and motivation among employees and ensure that everyone is working towards the same goals.
Key Variable Compensation Trends to Track in 2024 (Upstock)
1. Broadened Equity Participation
While once reserved for top executives and key personnel, equity options are now being extended to a broader range of employees, fostering a deeper sense of ownership across the company.
2. Educational Initiatives
Recognizing that equity-based compensation and variable compensation programs can be complex, organizations are investing in educating their staff about how stock options and variable compensation programs work and the potential long-term benefits.
3. Rise of Performance-based Pay
Performance, more than ever, is being directly linked to compensation in 2024. Organizations are moving away from generic performance metrics to more personalized ones, tailored to specific roles and individual strengths. With advanced monitoring tools, employees get real-time feedback, allowing for quicker course correction and a more immediate link between performance and rewards.
4. Emphasis on Non-monetary Benefits
2024 continues the trend of recognizing the value of non-monetary compensation. From meditation apps to company-sponsored retreats, well-being initiatives are becoming a norm rather than a perk. Opportunities for continuous learning, courses, and certifications are increasingly seen as vital components of compensation packages.
5. Pay Transparency
The move toward open conversations about compensation is more pronounced in 2024. Some progressive employers are adopting models where salaries are open knowledge among employees, breaking down traditional taboos. Tools are emerging that help rationalize and explain compensation decisions to employees, fostering trust and understanding.
6. Compensation Strategies to Prevent “Quiet Quitting”
The phenomenon of employees disengaging without formally quitting is being actively countered in 2024. Companies are instituting more frequent check-ins to gauge employee engagement and address potential issues proactively. Beyond just work output, metrics like participation in team activities and continuous learning are being factored into understanding overall employee engagement.
7. Blockchain Compensation
The incorporation of blockchain technology into compensation is on the rise in 2024. Blockchain ensures that compensation records are transparent and cannot be tampered with, enhancing trust. Bonuses and incentives can be automatically triggered upon the completion of predefined milestones through blockchain-based smart contracts.
8. Environmental and Social Responsibility Incentives
Organizations in 2024 are increasingly factoring in their social and environmental footprints, and compensation is a part of this trend. Employees who actively contribute to a company’s green initiatives, be it through ideas or implementation, are being recognized and compensated. Businesses are setting clear social responsibility targets and linking part of the compensation to the achievement of these goals.
WorldatWork Perspective (www.worldatwork.org)
“While we are seeing lower salary increases forecasted for next year, they’re still well above the ones we’ve seen for the past 10 years. This shows that companies are striving to stay competitive in an ever-changing work climate,” said Hatti Johansson, research director, Reward Data Intelligence, WTW. “Those companies that have a clear compensation strategy as well as a pulse on the factors affecting it will be more successful attracting and retaining employees while keeping pace with an evolving environment in which yesterday’s certainties no longer apply.”
More than half (51%) of organizations this year reported having difficulty with attraction or retention, compared with 57% last year. Respondents are expecting labor market pressures to ease, with only 35% expecting difficulties in 2024.
In response to these ongoing pressures, organizations are taking action to attract and retain talent. Half (50%) of respondents have reviewed compensation of specific employee groups, and 28% are planning or considering doing so. Additionally, 44% are hiring people higher in relevant salary ranges, raising starting salary ranges (43%), reviewing compensation of all employees (42%), and enhancing use of retention bonuses or spot awards (40%).
Non-monetary actions to attract and retain talent are in motion as well. More than half (59%) of respondents have broadened their emphasis on diversity, equity, and inclusion, and 25% are planning or considering doing so. Nearly as many (58%) have increased workplace flexibility. While 46% of respondents have taken action to improve their employees’ experience, 41% are planning or considering doing so. Other measures taken include changing health and wellness benefits (36%), modifying reward elements of compensation programs (33%) and increasing training opportunities (26%). Almost half (43%) reported funding the increase in total compensation spend through total rewards optimization (up from 21% in 2022).
Astron Solutions’ Perspective
Over the past year, and continuing in 2024 compensation planning, Astron Solutions has been tracking the following variable compensation trends:
1. A major push to incorporate career advancement tied to competency assessment and increased position complexity. A number of organizations are looking to reward employees as they advance in their career outside of base pay by providing a differential as a percentage of base pay that has to be re-earned each year.
2. Similar to this creative method of recognizing career advancement, many continue to turn to flat-dollar bonuses to recognize and reward individual and team performance. While care must be taken to avoid FLSA overtime issues, it does allow organizations to remind their employees that performance recognition must be re-earned each year.
3. With the ending of the great resignation predicted for 2024, many organizations will reallocate their hiring and retention bonus dollars into variable performance-based retention bonuses.
What Executive Compensation Will Look Like in 2024
Executive compensation presents unique challenges for both for-profit and nonprofit organizations. Here’s what we’ve learned about executive compensation in 2024.
Stay tuned for Michael’s insights on 2024 Executive Compensation .
Benefits Organizations Are Prioritizing in 2024
According to SHRM, the pandemic has significantly shifted how we view benefits, and individual needs have changed, too. Here are some of the top benefits employers are offering in 2024:
Stay tuned for Michael’s insights on Benefits in 2024.
6 Resources for Keeping Up With Compensation Trends
There’s one thing that your organization can be sure of when it comes to the compensation landscape—it’s always changing. The good news is that you don’t have to wait for end-of-year summaries or projections to stay up-to-date on the trends. Here are some resources you can turn to for general information:
- Cost-of-Living Adjustment (COLA) Information from the Social Security Administration
- Employment Cost Index from the Bureau of Labor Statistics
- News articles from Forbes, Harvard Business Review, SHRM, and WorldatWork
Astron Solutions’ Compensation Philosophy: Total Rewards
At Astron Solutions, our consultants recommend a total rewards approach to plan your compensation strategy around hot trends. A total rewards approach takes into account both direct and indirect forms of compensation:
- Direct compensation: This includes the financial aspects of a compensation package like salary or base pay, incentive pay, allowances, bonuses, overtime, and equity benefits.
- Indirect compensation: This includes all of the non-financial aspects of a compensation package such as traditional benefits (health insurance, retirement, PTO), workplace flexibility, performance recognition, career development opportunities, and miscellaneous perks (e.g., a company car or phone).
Many organizations turn to a total rewards compensation philosophy to help strike a better balance in how they compensate their employees, which can be especially valuable for companies or nonprofits working with lean budgets. Plus, a total rewards approach helps you provide a more holistic compensation package that can have a greater positive impact on your employees and your retention rate.
Our consultants can help your organization transform its compensation strategy using a total rewards framework. If you’re ready to take action on the compensation trends we’ve outlined above, contact us today!
In order to ensure your compensation strategy is helping your organization recruit and retain top talent, you need to understand your organization’s compensation context. Staying on top of current compensation trends can help you understand that context and keep your compensation strategy strong.
Looking for more information about compensation? Check out some of our other articles:
- Communicating Compensation to Your Employees: A Quick Guide. How you talk about compensation matters. Learn how to communicate compensation with transparency and candor.
- Executive Compensation: Taking Charge of Your Organization’s Approach. Designing effective executive compensation can feel like navigating a minefield, but a foundational understanding can help. In this article, we demystify executive compensation for nonprofits and for-profit organizations.
- Employee Compensation 101: What Your Org Needs to Know. Get back to the basics with this comprehensive guide to employee compensation. In it, we talk about measuring compensation, designing a successful strategy, and how a consultant can help.
- Pay Transparency: What It Is & How to Navigate New Laws. Have you been hearing a lot about pay transparency, or will a new law soon take place in your area? Learn more in this guide!