Salary.com's Annual Pay Practices Survey finds 64 percent of organizations continue to combat labor market woes with higher funding for merit increases, a 23 percent increase from the prior year. The survey, fielded in the fall of 2022 to HR professionals, reports that 40 percent find it more difficult than last year to attract qualified candidates. Planned increases in bonuses and long-term incentives (38 percent and 18 percent) remain in line with last year's survey results.

A Commitment to Fair Pay
Most HR pros (72 percent) believe their employees are paid fairly, yet only half think their current pay policies are positioned to successfully retain employees. In the face of a growing number of states, including California and New York, enacting equal pay and pay transparency laws, more than half (56 percent) of organizations have a formal process in place to address compliance with equal pay laws, a percentage that is expected to grow. A majority (56 percent) have a compensation philosophy; however, this represents an 8 percent decrease from the year prior.

"The slight decline in the presence of compensation philosophies, while surprising given the tenor of the times, could be a result of companies revamping their pay philosophies to address the growing number of states laws requiring pay transparency," said Chris Fusco, Senior Vice President of Compensation at Salary.com. "We expect to see the number of compensation philosophies rise next year." 

Room for Improvement: Compensation Communication and Employee Engagement

• Of the 56 percent of organizations with a compensation philosophy, two-thirds (72 percent) directly communicate it to their employees.
• 63 percent have a compensation plan and 60 percent of these organizations share the plan with their employees.
• Only a third of organizations provide formal training to managers on how to communicate with employees about compensation.
• Less than half (46 percent) of HR pros rated their organization's employee engagement as above average; 10 percent rated it below average.

"This survey tells us that communication around pay is lagging, and employee engagement may be suffering because of it," said Fusco. "Corporate leadership must address the dynamic of burgeoning pay transparency laws and a persistently tight labor market by pulling back the curtain on pay and training managers on how to have tough conversations. If they don't make progress, they could face lasting consequences."

Employee Turnover
With an unemployment rate in the 3.2 range, almost one-quarter of HR pros say their current level of turnover is causing them to miss production and delivery timelines, on par with the prior year. The highest level of turnover by region is in the Mountain States and Midwest (23 percent) and the lowest rates are on the West Coast (17 percent).

Total turnover rates by industry top out at 23 percent in healthcare, 22 percent in software & networking, and 21 percent in both hospitality & leisure and manufacturing. The lowest turnover rates are in aerospace & defense (13 percent) and business services (14 percent).