Organizations are facing a number of macro challenges, such as economic uncertainty, geopolitical conflicts and rapid technological advancements, particularly in artificial intelligence and automation. Employees’ expectations are shifting, and companies continue to feel pressure from unionization/labor activity.
Meanwhile, the labor market remains fragmented, grappling with skill demand-supply mismatches and demographic shifts. Labor costs remain a key focus area for businesses going into 2024. Salary budgets continue to be above norms compared to the past two decades and global healthcare cost increases hit a historic high of 10.7% in 2023, with similar projections for 2024.
In light of these market challenges, total rewards leaders are prioritizing five key areas in 2024.
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01
What’s it all A-Bot?
Examining the potential of artificial intelligence (AI) in enhancing total rewards
While generative AI has certainly caught the most attention, advancements in all areas of AI can help total rewards teams. AI unlocks unimaginable potential for total rewards functions and processes. We suggest three areas where AI may affect change for total rewards leaders in 2024.
- Organizations will look to enhance the employee experience using AI through personalized communication, better benefits navigation support, improved financial and health literacy and a bolstered understanding of rewards offered. Companies will also use AI to advance their understanding of employee sentiments, including what employees value, want and need.
- Companies will aspire for better business outcomes through improved analytical capabilities and data visualization on key human capital metrics, program use and market insights on compensation, benefits, jobs and skills.
- Total rewards functions will improve their operational efficiency via internal and external data aggregation, using machine learning for data gaps, patterns and trends. Natural language processing will further enhance knowledge management, automated reporting and communications.
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02
Spending money where it counts
Heightened focus on optimizing labor costs
While recent salary budget data suggests wage increases are at their highest over the past two decades, a large spread in practices indicates that companies are more inclined to “rightsize” their salary budgets to manage costs. Yet, rising global healthcare costs and macroeconomic and labor uncertainties are putting many employers in a difficult position for 2024. Simply passing costs to employees may not be feasible.
As employers look to better manage costs, we expect the following:
- Companies will seek cost efficiency by eliminating underutilized total rewards programs and rebalancing the total rewards portfolio. Organizations will use employee listening strategies and leverage data analytics to understand employee behaviors, needs and preferences. Companies will refresh studies on how their total rewards programs align with the market, reflecting both current and future trends, and look to differentiate their offerings. Companies will also reevaluate the unintended costs of their return-to-office policies. Employees may demand premiums in pay and subsidies in exchange for reduced work flexibility and increased out-of-pocket costs for caretaking responsibilities.
- In response to continued macro-environmental pressures, organizations will prioritize the cost of being unwell. They will reallocate spending and resources to programs that improve employee resilience, productivity and presenteeism, focusing on emotional and social wellbeing. For example, loneliness has recently been identified as a significant health risk, and lack of social connections may increase the risk of depression and anxiety.
- Under significant cost pressure, companies will explore creative ways to enhance total rewards appreciation without increasing spending. Some examples include education in financial acumen and more personalized communication in total rewards value through digital platforms and tailoring to life events.
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03
Bolstering employee pocketbooks
Renewed focus on financial resilience, affordability and retirement preparedness
A recent study found that up to 60% of Americans live paycheck to paycheck, and a third of American workers plan to retire at age 70 or later because they are concerned about their finances. Similar studies found that to be the case for significant portions of the workforce in the U.K. and Germany.
Our research suggests organizations will review their investment in programs that support employee financial wellbeing and affordability needs, and challenge prevailing models about how employees are rewarded through pay and benefits programs. Trends include:
- Near-term financial pressure may prevent companies from investing in direct compensation, but wage reviews to support the most vulnerable employees will remain a long-term priority.
In Europe, a directive on an adequate minimum wage passed the European Union (EU) Parliament. Member states will enact legislation by November 2024 that generally targets minimum wages at 60% of the gross median national wage and encourages more expansive collective bargaining coverage.
- Organizations will adopt retirement or healthcare strategies that are cognizant of the requirement for employees to contribute. For example, modifying retirement programs to provide an automatic employee benefit — through either a defined contribution or defined benefit plan, healthcare choices that include a “free” option or enabling contributions that vary based on salary.
- As workforces in most countries continue to age, companies are at increased risk of talent shortages or surpluses that stem from unpredictable employee retirement patterns. It's critical for organizations to reimagine the retirement experience for older workers via thoughtful approaches to retirement planning, programs that encourage phased retirement and knowledge transfer, and workforce analytics to inform the company’s long-term talent strategy.
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04
Transparency 2.0: What’s next?
Evolving from a compliance exercise to a focus on governance and strategy
Influenced by a changing regulatory landscape, social media and data democratization, transparency has become a top area of focus for total rewards leaders. There are significant risks to organizations that don't get this right — reputational risks, erosion of employee trust and compliance risks — yet only a few organizations are ready to address these challenges globally. In 2024, companies will move beyond transparency as a compliance-driven exercise and will prioritize the governance of transparency in their total rewards agenda.
- As organizations respond to pay transparency laws across multiple jurisdictions (e.g., the EU Pay Transparency Directive and state-level pay transparency legislation in the U.S.), they will strive to adopt a globally consistent approach to transparency that satisfies multiple sets of standards. They will implement new governance models and robust communication strategies to support their transparency objectives.
- Boards are increasingly keen to provide oversight on how organizations respond to pay transparency regulations, which will expose them to increased legal and reputational risks related to equity gaps. The board's interest will put greater momentum behind a sustainable total rewards agenda as organizations review their benefit and career programs for opportunities to be more equitable and inclusive.
- Boards’ interest in better human capital reporting and measurement will increase as they seek to oversee human capital risks more effectively. Much of this interest will be driven by new reporting requirements (e.g., the Corporate Sustainability Reporting Directive, which imposes disclosure requirements on non-EU businesses with EU operations or subsidiaries, or potential new reporting coming out of the Securities Exchange Commission in the U.S.). These human capital metrics will include, among other things, the competitiveness and outcomes of total rewards (e.g., employee health, financial resilience and productivity). Organizations will prioritize human capital metrics that matter most to the business, including comparisons to market norms for better insights, an action-oriented plan to address any weaknesses in the human capital ecosystem and a framework to track progress on an ongoing basis.
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05
Focusing on the “long game” of employees’ careers
Reinforcing integration of jobs and skills
Enhancing the career experience is an effective way to engage employees without increasing labor costs. WTW’s Global Benefits Attitudes Survey found that career is consistently ranked as a top five total rewards priority for employees. Career advancement is also a key driver of long-term financial wellbeing and wealth accumulation — and it fosters greater diversity at mid- and senior levels.
Yet most employers haven't done enough. Our study of 1,400 global employers found that while most companies have implemented consistent job leveling and discipline frameworks across their organizations, only one in five have developed the infrastructure in knowledge architecture (i.e., skills and competencies) career strategy (i.e., philosophy for career movement, career paths and transparency) and career activation (i.e., training and development, communication and change management). This means that 80% of global employers haven't seen the full potential of their career ecosystems.
As companies look to refine their strategies in this area, we forecast several trends:
- Career programs will be modernized to foster choice, a sense of empowerment and an easily navigable journey across the organization. They’ll focus on redesigning jobs, reviewing learning and development programs and prioritizing career experiences (from recruitment to retirement). As business dynamics evolve, companies will refine their approach to managing skills and explore effective ways to place premiums on critical skills. Job and knowledge architectures will be more closely connected.
- More companies will remove the college/university degree requirement for entry-level positions and tap into new talent pools which may be more cost-effective that can be skilled on the job (e.g., comprehensive recruiting and development programs akin to a co-op or trainee programs for knowledge workers). Organizations will prioritize skills development to more objectively support employee career growth and improve pay and career equity.
Lean into the change
They say, “With change comes opportunity” and the current environment is certainly no different in this regard. Total rewards leaders will seek to capitalize on change in 2024 in various ways. AI will become more prominent in total rewards discussions as new technologies are adopted to improve employee and business outcomes. Leaders will seek cost efficiency by eliminating underutilized total rewards programs while simultaneously addressing employee wellbeing, financial resilience, the governance of transparency and reimagining their career ecosystem.
There's an upside for those who lean into the wave of change. Organizations that adapt quickly will gain a competitive advantage in attracting and keeping top talent, fostering a more productive and engaged workforce and optimizing labor costs to create value for their business, effectively turning new challenges into new opportunities.
