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5 Compensation Trends to Plan For In 2022

Jen Dewar
Sep 2, 2021 7:30:00 AM

It’s that time of year again—time to look back on 2021 and start planning for 2022. There’s much to consider after the tremendous changes organizations and teams have experienced over the past couple of years.

Compensation practices in particular have been rife with change. At the beginning of the pandemic, some companies froze salaries or implemented pay cuts, while others offered additional hazard pay for those working on the frontlines. Fast forward 18 months, and compensation is moving fast as organizations focus on recruiting and retaining talent in the new world of work.

Here are 5 compensation trends to keep in mind as you get into planning season.

1. Pay equity

Pay equity will continue to be an important compensation trend to stay on top of in 2022. Despite some progress, there are still significant pay gaps by gender, race, age, gender expression, sexual orientation, and ability. 

These pay gaps can have a negative impact on employee engagement and retention, particularly as we forge ahead in the “Great Resignation.”. Forty three percent of workers say they would leave their current position if they discovered they were paid less than a colleague of a different race or gender doing the same job. 

Pay inequities are also illegal in many areas. Federal, state, and local pay equity laws have continued to emerge over the years to support fair pay practices and close wage gaps. For instance, both Nevada and Rhode Island will enact state-wide pay equity legislation over the coming months.

A pay equity analysis during your next compensation cycle can help you identify potential issues and fix them before they lead to turnover or legal problems. 

2. Remote compensation

Remote work is here to stay, with nine in 10 organizations planning to combine remote and on-site working post-pandemic. As companies continue formalizing remote work policies and programs, it’s important to consider a remote compensation strategy. That is, whether you will use a global rate, local rate, or zones to determine compensation if remote workers relocate. 

There are strong opinions on both sides of the table, and every organization will need to make a decision that’s best for their team. For instance, Facebook and Twitter reduce pay for remote employees who move to areas with a lower cost of market, while Reddit and Zillow use location-agnostic pay models.

Once you know how you will pay remote employees, make a plan to retrofit your remote compensation strategy over the coming year. You may decide to make adjustments as people relocate, or make more gradual adjustments over a longer time period.

If your organization is located in an area with a high cost of market, relocations could result in some recovered budget. This could provide an enormous opportunity to reallocate some budget toward pay equity adjustments.

3. Rising wages 

Pay went up nearly twice as fast for lower-wage workers than it did for higher-wage workers between May 2019 and May 2021. While some of this growth may be due to the elimination of some of the lowest-wage jobs during the pandemic, many employers have recently announced higher wages in order to overcome labor shortages. This includes companies like McDonald’s boosting wages by 10 percent, and Bank of America raising minimum wages for hourly workers to $25.

This trend may lead to salary compression, where there is little difference in pay between team members, despite differences in things like skills, experience, performance, or tenure. Watch out for compression by looking for clusters in compa ratio distribution and reviewing salary distribution analyses during your regular review cycles.

On average, U.S. employers are planning 3 percent increases for executives, management, professional employees, and support staff in 2022. This could be problematic, as the consumer price index rose 5.4 percent between July 2020 to July 2021. This is perhaps a contributing factor to the 65 percent of workers who are currently looking for a new job, as the number one reason for doing so is to earn higher wages and salaries. 

Keep an eye out for wage growth across all job levels to ensure you’re able to attract and retain talent in 2022. You might consider adding an extra mid-year compensation review cycle to your plan, or putting a system in place for team members to request off-cycle salary reviews.

4. Internal mobility

In addition to compensation, career advancement is another common reason workers seek new opportunities elsewhere. Forward-thinking companies will focus on internal mobility in 2022 in order to address compensation increases and career growth, thus improving employee retention. Three in four employees who receive promotions will stay with the company for at least three years.

Internal mobility is a retention strategy that works best with some level of pay transparency. That is, your team members should know why they earn what they earn, and what they can do to earn more. 

Create career ladders with well-defined job descriptions, skills, expectations, impact, work experience, education, or other requirements needed to advance job levels. Then set goals and development plans with your team members, and offer promotions when reasonable. Many organizations build internal mobility into their review cycles to make it a regular practice.

5. Total Rewards

Cash certainly isn’t the only way to attract and retain talent, and organizations are building out their total rewards offerings for 2022. One of the most notable changes is in mental health benefits, with 88 percent of employers investing more in this area. Other key areas of increased investment include mindfulness and meditation, on-demand fitness classes, stress management and resilience, and telemedicine.

Ninety four percent of employers say voluntary benefits are important to their employee value proposition and Total Rewards strategy, compared to only 36 percent that said the same in 2018. The most common offerings are financial planning and tuition reimbursement, while identity theft, hospital indemnity, and pet insurance are on the rise.

And of course many organizations are also offering coveted flexible work arrangements, including remote work, flex hours, and reduced work weeks. 

A comprehensive Total Rewards strategy can help you stay competitive in the talent market, even if your organization is not able to offer top of market compensation.

Final thoughts on compensation trends

There have been so many changes over the past couple of years, with many more ahead as we transition into our “next normal.” And many HR teams are attempting to tackle these changes without the headcount they need. It can be difficult to find experienced compensation specialists and Total Rewards professionals, and even more difficult to retain them.

Investing in the right technology can help. The right solutions can make your existing team more successful in their roles, fill skill gaps, and even reduce the need for additional headcount. For instance, a modern compensation management platform can provide analyses to watch for pay inequities or pay compression, streamline regular review cycles, and manage remote compensation. The world of work is changing, and it’s important to have the right toolset so your team can thrive in 2022.

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