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2023 Compensation Trends to Watch

Based on trends observed in 2022 and survey data on employers 2023 plans, we have identified some top trends to watch in compensation in 2023.

Employers Formalize Compensation Philosophy for Remote Work

Entering the third year since the massive shift to remote work caused by COVID-19, one fact is clear, remote work is here to stay. 66% of employees surveyed indicated that workplace flexibility was a top consideration, with 18% indicating it was the primary consideration, in their employment decisions. As a result, 68% of employers plan to continue or adopt a hybrid or full remote office approach.

Throughout the pandemic, most organizations have used a case-by0case approach to determining compensation strategy for remote and hybrid workers. With these arrangements being here to stay, companies will need to finish finalizing formalizing their philosophy. Many companies have been taking an approach of using the national average unless they have employees in very high cost of labor markets. This trend is likely to continue in 2023 as data trends continue to stabilize through 2024.

Average Pay Increases Expected to Be Higher in 2023

With inflationary pressures continuing to squeeze employers and employees, 3 in 4 employers report that the continue to have problems attracting and retaining workers. To combat, 57% of companies reported hiring candidates higher in their relevant salary ranges.

Additionally, 76% of companies reported they have or are planning on annual adjustments of 4%-5%, with the average being 4.8%. Further, 90% of organizations reported they are planning on making salary adjustments two times in the year instead of the traditional one. Organizations will want to carefully consider annual adjustments greater than the traditional 3% standard in 2023 to remain competitive.

Pay Transparency Is the New Norm

At the start of 2023, one in four workers are now covered by one or more forms of pay transparency legislation. With a number of states and cities either considering or planning their own pay transparency laws, this number will continue to increase through 2023. Research has found that employers that embrace pay transparency policies experience greater employee retention as well as investor interest. While pay transparency may not become standard practice in 2023, it will continue to increase its position as best practice. Organizations that embrace adopting pay transparency policies, especially ahead of legislative mandate, should find themselves positioned ahead of the curve in employee satisfaction and retention on this issue.

Addressing Work/Life Balance and “Quiet Quitting”

Closely related to remote work conversations is the increased focus on work/life boundaries, popularized by the “quiet quitting” debate that arose on social media in 2022. Flexibility in the workplace is often focused primarily around where the work is done. It is important not to neglect the conversation of WHEN work is done. For many workers, but in particular those with responsibility of care, flexible work hours became crucial during the pandemic. Although with that, there was also a large increase in the stress many workers felt that they were compelled to work at any hour.

Top employers will focus on addressing these concerns in 2023 and work to help their employees establish work/life boundaries and train managers to respect and support employees to work flexibly. In many cases this will require a hard culture change among management to move away from “watching the clock” and focusing on the specific hours in which an employee is completing their workday and instead evaluating success by the actual output of employees. The key to this is redefining and making sure to communicate and stand by the definition, of what productivity really means, and effectively defining roles. Organizations that demonstrate they are cognizant of workers needs outside work and respect those boundaries are more likely to experience increase in effort and dedication from employees and thus increased productivity overall.