“If we were to capture how to approach 2024 in one phrase, it might be ‘cautious optimism’”, according to Payscale’s 2024 Compensation Best Practices Report, which surveyed 5,735 individual contributors, managers, and executives across various industries.

Compensation is found to be an organization's biggest challenge in 2024, surpassing recruiting, retention, and engagement.

Here’s a rundown of the highlights from the report:

The War for Talent: On Pause but Not Over

While white-collar sectors grapple with layoffs and hiring slowdowns, blue-collar occupations face a different challenge: labor shortages and escalating wage growth. This dichotomy underscores the importance of a nuanced approach to compensation and recruitment strategies tailored to specific industries and job markets.

Fewer Pay Increases This Year and a Slower Job Market

Competitive raises that outpace inflation stand out as a priority, even amid a sluggish economy. However, there's a notable shift as fewer organizations are planning to dole them out this year. Predictions for average base pay increases in 2024 hover around 4.5%, although some industries anticipate increases as high as 6%. Interestingly, only 79% of organizations intend to grant pay raises this year, a decrease from the 86% reported in 2023 and marking the lowest figure in recent years.

Notably, reported voluntary turnover stands at 21% in 2023, a 4% decrease from 2022's 25% and a significant drop from 2021's 36%. This decline serves as evidence that, at least temporarily, the job market favors employers.

Compensation and Recruiting: Inseparable Allies

Payscale identifies compensation and recruiting as the twin pillars shaping the HR landscape. With 82% of businesses either crafting or refining their compensation strategies, it's evident that organizations are recognizing the pivotal role of pay structures in attracting top performers. Market-based pay structures are gaining traction, with 62% of organizations adopting or aiming for such models.

Embracing Pay Transparency

One of the standout shifts highlighted in the report is the embrace of pay transparency. An impressive 60% of organizations now disclose salary ranges in job postings, a 15% surge from the previous year. This transparency not only aligns with legislative trends but also meets the rising expectations of job seekers. By providing upfront information about compensation, employers attract more applicants with realistic salary expectations.

Narrowing the Pay Gap

The report sheds light on the gradual narrowing of the gender pay gap, with 71% of organizations analyzing pay equity by gender—an increase from 56% in the previous year. However, achieving true pay equity demands vigilance and proactive measures. Employers are urged to leverage reliable salary data for benchmarking, eliminate bias in compensation decisions, and prioritize objective criteria to bridge the gap effectively.

Skills-Based Hiring: A Paradigm Shift

A notable trend gaining momentum is skills-based hiring, which prioritizes demonstrable competencies over traditional degree requirements. By focusing on skills-based pay and compensation for in-demand skills, organizations can tap into a diverse talent pool and foster employee engagement. Overhauling job descriptions and implementing skills-based assessments are key steps in adapting to this evolving landscape.

Beyond the Offer: Retention through Compensation

While competitive salaries and benefits are essential for attracting talent, they're equally crucial for retaining it. Clear compensation structures, incentives for high performers, and investments in employee development emerge as strategies to foster loyalty and long-term engagement. By offering transparent career paths and growth opportunities, organizations can nurture a culture of excellence and drive employee satisfaction.