Compensation

Benefits and Compensation Best Practices for 2024

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Last Updated: February 20, 2024

5 minute engagement

Despite higher-than-average pay increases in 2023 and budgeted for 2024, many employees are dissatisfied and want more for their work.

That’s the upshot from Payscale’s 15th annual report on compensation and benefits.

HR’s challenges and priorities in 2024

Top 5 challenges

In the 2024 Compensation Best Practices Report, Payscale asked participants to rank their companies’ biggest challenges. Participants were allowed to select more than one answer. Not surprisingly, compensation was cited as the biggest challenge, with half of survey respondents placing compensation at the top spot.

Other challenges rounding out the top five:

Recruiting (44%)
Retention (42%)
Engagement (37%), and
Career pathing (32%).

Top 5 priorities

Regarding priorities, 37% of respondents ranked retention as the highest-priority investment area. Other high priorities for investment include:

Tie: Recruiting (35%) and engagement (35%)
Compensation (34%), and
Learning and development (33%).

Compensation challenges: Best practices in 2024

Compensation was listed as the biggest challenge, but the participants revealed that it hadn’t been slated as the highest priority area for investment in 2024. What’s causing this disconnect?

And more importantly, what will HR do to handle the problem with a limited budget?

Posed with that question, survey participants ranked the following strategies from highest to lowest in importance for handling compensation challenges this year:

Rewarding performance (most important)
Budgeting for or managing pay increases
Increasing pay and improving salary offers to attract top talent
Maximizing compensation budget
Making compensation operations more efficient
Identifying and addressing pay inequity
Monitoring and addressing pay compression
Becoming more communitive and transparent about pay practices with employees
Creating or revising comp structures
Increasing confidence in pay ranges posted in job ads
Incorporating new sources of compensation data
Developing or revising comp philosophy and/or strategy
Creating or getting more use out of total rewards statements
Creating or managing job architecture and leveling
Gaining (and/or keeping) a seat at the table for compensation functions/employees
Moving toward a skills-based workforce and/or pay strategy
Incorporating AI into compensation practices
Shifting to location-based pay strategies for a remote workforce
Enlarging the compensation team
Hiring a dedicated compensation professional for the first time (least important)

Compensation strategies

1. Market-pricing pay

Market-pricing pay is a common compensation strategy that looks at pay rates for similar jobs in your current industry and uses that research to set competitive pay ranges.

When asked about their company’s market-pricing strategy, survey participants said they:

Target pay at the middle of the market (41%)
Use different targets depending on the job (26%)
Target pay above the market (17%)
Target pay below the market (7%)
Do not have a market-pricing strategy (6%)

2. Skills-based pay

Skills-based pay is a compensation strategy that supports the growing trend of skills-based hiring. This strategy determines employee pay based on workers’ knowledge, experience and skills rather than a job title.

More than half (58%) of survey participants said their companies compensate for competitive skills. When asked how, participants said they:

Apply a premium to base pay (50%)
Use a higher target percentile (38%)
Give a one-time bonus at hiring or upon skill attainment (26%)
Slot into a higher grade (23%)
Give an annual or periodic bonus as long as the skill is hot (19%)
Are unsure (4%), and
Do something else (3%).

Proponents of this compensation model say it removes education and job history requirements, eliminating the “paper ceiling” and widening the talent pool. The report found that more than one-third (34%) said they had removed degree requirements to consider all applicants with the necessary skills and experience.

3. Geographic pay

In the aftermath of the pandemic, remote and hybrid work is here to stay – at least for some workers. Most survey participants described their workforces as traditional or hybrid, both of which require employees to live within a commutable distance. Only 11% described their workforce as remote.

Survey participants were asked if they had a pay strategy that encompasses a remote or distributed workforce and said:

No, we pay everyone the same according to one location (49%)
Yes, we set pay based on market pricing for each employee (14%)
Yes, we apply geographic differentials to a benchmark for each employee’s location (14%)
We have a mixed strategy that varies by occupation or job family (10%)
Yes, we group similar markets into pay zones and use market pricing or geographic differentials to set pay for each pay zone (9%)
Yes, we approximate using data we can find or by calculating cost-of-living differences (4%)