Most organizations agree that updating their compensation and total rewards strategies is essential to success, but they’re not prioritizing strategy upgrades. Read this blog post to see how understanding this and other key findings from HR.com’s “Future of Compensation and Total Rewards 2023-24” report, sponsored by PeopleFluent, can give your organization a competitive edge.

1) Most Organizations Believe In Modifying Their Total Rewards Strategy

The majority of respondents (70%) agree that updating their organization’s total rewards strategies will help it keep pace with changing attitudes around compensation. High inflation, legislation surrounding salary transparency, and employees’ continuing demand for proof that their pay is equitable are all factors putting pressure on organizations to rethink their compensation and total rewards programs.

Interestingly, 85% of respondents report that it’s important to modify reward strategies for individual contributors, compared to 71% who think it’s important to update their strategies for senior executives. Organizations may be putting more emphasis on modifying total rewards for individual contributors rather than senior executives because high-level leaders likely have key performance indicators (KPIs) that are easier to measure, such as a company’s stock price or shareholder value. Individual contributors, on the other hand, may have KPIs that are potentially more difficult to measure depending on their specific job functions and the changing needs of their organizations.

Though most organizations believe that they need to update their total rewards strategies, only 38% are actively planning to make modifications within the next year. This low percentage could be due to organizations lacking the resources needed to conduct a thorough analysis of their compensation and benefits practices. It’s also possible that these organizations cannot commit to an overhaul of their total rewards policies because of other competing priorities.

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2) Organizations Face 3 Major Challenges When It Comes to Their Total Rewards Systems

According to HR.com’s report, organizations face three major challenges:

• The strategies aren’t understood well by employees (49%)
• Total rewards and compensation aren’t linked well to employee performance (36%)
• The systems aren’t agile and flexible to changing business circumstances (29%)

The degree to which these challenges are felt varies with organizational size, however. The report defines large, mid-sized, and small organizations as follows:

• Large organizations have 1,000 or more employees.
• Mid-sized organizations have 100 to 999 employees.
• Small organizations have 99 or fewer employees.

Respondents at small organizations were much more likely to cite a disconnect between total rewards/compensation and employee performance. 53% of small organization respondents cited this pain point, compared to 27% of those at enterprise organizations. This could perhaps be explained by large organizations having the resources to create systems that include employee performance in their compensation and rewards plans.

3) Organizations With More Mature Compensation and Rewards Approaches Are Investing In Initiatives to Improve Pay Equity

HR.com’s report defines mature organizations as those with survey respondents who “give relatively high ratings to their approach to compensation and rewards.” These organizations tend to prioritize their total rewards strategies, and 70% of them are spending more time reviewing their compensation packages to help ensure they’re offering fair and equitable pay to employees.

Reviewing compensation and benefits packages can be a time-consuming and complex process. Mature organizations manage these difficulties by establishing real-time benchmarks (55%) and leveraging statistical analyses (43%) before committing to any salary or benefits adjustments.

Organizations striving to close wage gaps and improve pay equity can start by devoting time to reviewing internal and external compensation metrics. Understanding market data and comparing it to internal compensation information will help organizations develop benchmarks to improve their total rewards systems. Additionally, taking advantage of software with a pay equity analysis feature will give leaders detailed insights into their compensation and rewards practices. Statistical analyses will provide the information needed to address any inequities in total rewards strategies.

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4) Many Organizations Are Open to AI Assistance

Although the capabilities of AI are still evolving rapidly, the majority of organizations hope to use the technology in some way to support their total rewards strategies. More specifically, 60% of respondents say their companies want to use AI to analyze industry and market trends and offer more highly competitive pay. Nearly the same amount (59%) say their organizations hope to automate manual processes and improve efficiencies with AI, and 53% want to use the technology to identify disparities in compensation and rewards.

Despite the apparent enthusiasm to adopt AI, only 38% want to use AI to optimize their reward strategies with predictive analytics. It’s possible that organizations aren’t yet confident that AI technologies can successfully and accurately optimize their strategies.

5) Compensation and Total Rewards Will Continue to Be a Priority

Although most organizations aren’t actively planning to modify their strategies over the next 12 months, nearly three-quarters of respondents (74%) agree that compensation and total rewards programs will continue to be a priority for their businesses over the next two years. When asked to share their top compensation and total rewards priorities for the coming years, 71% cited the need to stay competitive in their industry. The second-highest priority (62%) is the need to be equitable and fair.

Balancing the need to stay competitive with the desire to improve pay equity could prove to be challenging for many organizations. A volatile talent market, rising costs and inflation, and other economic uncertainties will inevitably impact how companies develop and modify their compensation and total rewards strategies.

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