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2022 Compensation Trends: Pay Transparency, Distributed Workforces & Total Rewards

2022 Compensation Trends: Pay Transparency, Distributed Workforces & Total Rewards

How CHROs are rethinking comp strategy in 2022

As the competition for talent heats up and more workers participate in the “Great Reshuffle,” compensation has become a critical business challenge for companies at every growth stage. Beyond the pressure to offer above-market salaries and raises, CHROs are dealing with various internal and external factors, from evolving regulation around pay transparency to determining the best compensation approaches for distributed workforces. 

We recently convened our CHRO|Circle to get a pulse on how people leaders address the most significant issues impacting their current compensation strategies. Below are the key Takeaways from that conversation, and some additional insights on how finance and people leaders are thinking about compensation strategy in 2023 revealed in a Founders Circle Capital survey:

Companies are Increasing Salaries in 2023

Despite market volatility, companies are still expecting to increase their overall compensation budgets in 2023, following a trend that began in 2022. According to a 2022 survey of CHROs and CFOs in The Circle, companies are planning to increase compensation levels across their employee-base by 5% in 2023. While this percentage increase is lower than 2022’s 8%, it reveals that companies remain strategically focused on attracting and retaining key talent using compensation. For the majority of companies surveyed, compensation increases in 2023 will be cash-based (base salary and/or bonus), ranging from 4% to 7%.

The Market is Moving Towards Pay Transparency

Pay transparency has become a hot-button issue as more states introduce legislation requiring employers to disclose salary ranges and promotion opportunities to current or prospective employees. Many of the CHROs in our community are leading that culture shift. Some have already published salary ranges and benefits information on their job postings, while others are taking a more conservative approach or avoiding select geographical hiring markets in the short term while things play out.

The issue is complex for sure, as some CHROs pointed out that pay transparency can sometimes hinder your hiring and retention. Employees tend to compare themselves to others at the same title or level. Without full context into how the company recognizes and rewards each individual’s contribution, there is always the potential for conflict.

CHROs agreed that a clear compensation philosophy, with buy-in and support from the leadership team, is essential to communicating pay transparency effectively. They also pointed out that whether you choose a soft rollout in certain geographical areas or a full rollout, it’s important to engage your employees in the process, clearly laying out for such employees how their current pay is formulated and the various promotion opportunities they can consider to further their careers.

Merit-based and Geo-differential Raises

CHROs have traditionally relied on industry and competitive benchmarks when developing compensation packages, combining “science and art.” However, the market is now moving faster than ever, making benchmarking more challenging – flipping the ratio to be much more art than science. For one, employees are still largely remote and dispersed throughout different geo-locations, making cost-of-living wage increases more difficult to standardize. In fact, 35% of CHROs that attended our community discussion are already leveraging standard geographic pay differentials for their distributed workforce.

Merit-based and cost-of-living pay raises have gone up by nearly double across the board this year. To support retention without over-inflating salary budgets, CHROs have been looking more closely at employee performance ratings to see where they can afford to offer above-market raises. From there, they’re leaving it up to the managers to choose how to distribute those raises.

Higher Salary Demands From New Hires

A good part of the conversation focused on the challenges of hiring in a candidate’s market. Even with competitive compensation packages, CHROs are encountering more aggressive salary negotiations from job candidates. In response, many are offering larger equity offerings and sign-on bonuses if they can’t meet their salary requirements.

Several CHROs noted that during these negotiations, it’s essential to establish firm cutoffs for when a candidate’s demands are too high; and be willing to walk away when it’s not a fit for all of the factors that the company needs to consider.  

Revisiting Total Rewards

As compensation becomes a more vital lever for both recruitment and retention, CHROs are taking a closer look at their total rewards package, realizing that a one-size-fits-all approach won’t fully communicate the value of the compensation package. Many CHROs are structuring different total rewards based on the stage of growth the company is at, the level of seniority, and the types of equity that can offer the most upside to an employee. 

Another hot topic of debate was the subject of bonuses and whether they are still an effective means of incentivizing performance. Several CHROs noted that bonuses could have diminishing returns for top performers, who might otherwise prefer an increase to their base salary. Of course, eliminating bonuses or creating a stretch goal structure can quickly alter the dynamics of not only your compensation strategy but overall financial performance, which is why it should be a conversation between the CHRO and CFO.

Want to keep a steady pulse on compensation, talent, and HR strategies as you scale your company? Apply to join The Circle and gain access to a private community of CHROs and other leaders you can leverage to get insights, ideas, support, and answers.

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