7 Trends to Watch in Benefits and Compensation in 2024
Jan 23, 2024
Amid record salary hikes, the explosion of GLP-1 drugs and the
end of pandemic emergencies, 2023 was a big year in total rewards. But don’t
expect things to slow down in the benefits and compensation world in 2024,
industry experts said.
“It will absolutely be a big year,” said Kim Buckey, vice
president of client services at Optavise, a Carmel, Ind.-based benefits
administration firm. She added that it will be best practice for organizations
to follow a detailed strategy to address total rewards this year.
“Having a formal benefits strategy in place can help keep
employers focused on addressing employee needs and company-specific areas of
cost increases, while reducing the temptation to explore the ‘solution du jour’
or the latest buzzy benefits offerings,” Buckey said.
Here are some of the top benefits and compensation trends to
watch in the coming year.
GLP-1 Drug Coverage
Decisions
GLP-1 drugs such as Ozempic and Wegovy, which are used to treat
type 2 diabetes, drew attention as a weight loss tool in 2023 and quickly
became in demand among employees. As a result, employers began considering
whether to cover them for that purpose. That conversation will only intensify
in 2024, experts said.
“The GLP-1 drugs as weight loss tools are very top of mind and
very trendy,” said Jeri Hawthorne, CHRO at benefits firm Aflac. “I think that
will continue to be a massive topic because most self-insured health insurance
plans do not cover those. And companies are evaluating, ‘Do we offer this
because we want healthy employees? But they’re extremely expensive and we don’t
know the long-term side effects.’ Employers are deciding, ‘Is this the right
thing to do? What’s the impact of that to our workforce and our population?’ ”
Some evidence points to more employers covering the medications: An October survey of 500 employers by health care
firm Accolade found that 43 percent of employers plan to cover
GLP-1 drugs in 2024—nearly double the share of employers that covered them last
fall.
The anticipated spike is likely the result of high interest
among employees, as well as potential boons to employers in terms of healthier
workers. Providing access to the medications could also be a recruitment and
retention tool, said Dr. James Wantuck, associate chief medical officer at
Accolade.
“With the recent spike in demand surrounding these medications,
HR decision-makers feel it will create a better health insurance package
overall for employees, as well as boost their mental and physical health
long-term,” he said, noting that more than two-thirds of companies that added
GLP-1 coverage to their health care offerings experienced an increase in
enrollment.
“For companies who are already offering this medication as part
of their benefits, they’ve also seen higher employee satisfaction as a result,”
Wantuck added.
More Financial Health
Offerings
Although inflation cooled over the past year, employees are not
feeling much reprieve. In fact, employee financial well-being suffered several
blows in 2023: A significant number of workers said they were living paycheck
to paycheck; credit card debt hit an all-time high; employees said inflation
was hindering their overall savings, as well as their retirement savings;
and employee financial wellness hit an all-time low.
“We’re seeing signs of worker financial stress as pandemic
savings are depleted, debt loads increase and student loan payments restart,”
said Timothy Flacke, co-founder and executive director of the Boston-based
national nonprofit Commonwealth.
That means financial health will become a bigger priority for
employers in 2024, experts predict.
Flacke said he expects employers will broaden their interest in
financial benefits, from financial budgeting help and debt repayment tools to
emergency savings and student loan debt help. “Employers are increasingly
understanding the broad need among workers for greater near-term financial
security. Meanwhile, more SECURE [Act] 2.0 provisions are kicking in, with
ongoing progress in clarifying the legislation itself and providers who are
building features to take advantage of the new policy,” he said.
And while some employers may look carefully at adjusting their
benefits priorities if budgets are tight, “financial benefits offer very strong
bang for the buck,” Flacke noted.
Pay Increases Will Meet
or Exceed Inflation
Salary raises were some of the highest in years in 2023. But
that didn’t make much of a dent for employees as continued high costs of living
proved problematic.
This year, though, wage growth is expected to meet or surpass
inflation for the first time since 2020. The International Monetary Fund
projects lower inflation for the U.S. at around 2.8 percent, and employers are
budgeting for pay increases of between 3.8 percent and 4 percent, according to various projections.
Those increases “will start to close the gap with nominal
wages—if only by a little,” said Ruth Thomas, pay equity strategist at
Payscale.
However, real wages will continue to lag.
“Workers still feel the burden of higher prices, contributing to
tensions on growing wealth inequality and potential unrest,” Thomas said.
“Employers should ensure pay increases remain strong and consider salary
adjustments to keep up with market changes to avoid turnover from employees
seeking better pay.”
A recent WTW survey found that inflationary pressure is the
primary reason behind increased salary budgets for 2024. Employers surveyed
also cited concerns about a tight labor market as a reason for bumping up
workers’ pay.
“We are seeing healthy salary increases forecasted for 2024,”
said Hatti Johansson, research director of reward data intelligence at WTW.
“Though economic uncertainty looms, employers are looking to remain competitive
for talent, and pay is a key factor.”
Mental Health Focus
Mental health has been a big focus of organizations for the past
few years, and that will likely continue in the coming year. In fact, it may be
a bigger emphasis due to rising rates of employee burnout and the looming
presidential election, which may lead to greater employee angst and stress.
“Mental and emotional wellness will be a massive topic,
especially as we’re going into an election year,” Hawthorne said. “People tend
to be much more polarized in their views. Maybe five or 10 years ago, people
could just disagree on and have different perspectives on certain topics, but
now it’s become much more polarized and sometimes even aggressive. Mental
health—and areas around helping reduce stress and improve emotional wellness—will
be a massive focus for the next year.”
Expect organizations to increasingly tout available resources
for employees, as well as consider new benefit offerings such as mental health
days and mental health apps.
Controlling Health Care
Costs
Organizations are bracing for higher health care costs in
2024.
“Increasing health care costs have been an employer concern for
years, if not decades, and this year will be no different,” Buckey said.
“Medical inflation, increased demand for weight loss drugs and the availability
of new medications and gene therapies continue to drive up costs. Because
employers are reluctant to pass on to their employees most of the increases
they experience, managing their costs will be even more of a priority.”
Employers may take different approaches to do so, from offering
integrated wellness programs and telemedicine options to requiring prior
authorization.
“Every employer is different, and there are almost as many
approaches to controlling health care costs as there are employers,” Buckey
said. “Some will investigate value-based care by rolling out centers of
excellence or additional network tiers. Some will try reference-based pricing,
while others will implement stricter controls on prescription drugs. There is
no one right answer, and each year seems to bring a new potential solution.”
More Pay Transparency
In 2023, several state legislatures considered pay transparency
legislation. While Hawaii (effective Jan. 1, 2024) and Illinois (effective Jan.
1, 2025) were the only states to pass this type of law, Lulu Seikaly, senior
employment counsel at Payscale, said the transparency trend won’t slow down in
2024.
She predicted that not only will more pay transparency
legislation be on the table, but that “new legislation will start to require
employers to regularly communicate to their employees what the pay range is and
where they fall in that range.” For example, in Rhode Island, employers must
provide the salary range to an employee if they ask for it during their course
of employment.
“If organizations have their compensation strategy in order,
this will actually be a good thing,” Seikaly said. “Being transparent with
employees will increase trust and retention.”
Hawthorne agreed, saying conversations about pay transparency
among organizations—even those in localities without any legislation mandating
it—will continue in 2024.
“What we found with our own data is that employees prefer to
live [where]—or they’ll prefer to apply for jobs where—ranges that are posted
are narrow,” she said. “When pay transparency first became common, some
companies put salaries with big ranges. I think there were conversations about narrowing
of ranges because that’s desired by employees.”
Pensions May Make a
Comeback
IBM announced late last year that it was unfreezing its pension
plan and ending its 401(k) match—a significant shift, given the company’s large
footprint and status.
Other employers might consider a similar move and bring back a
pension plan, experts said.
“We are confident that other employers have taken notice of what
IBM is doing. Even before that [announcement], many organizations were already
having conversations about whether this type of shift is right for them,” said
Jonathan Price, national retirement practice leader at benefits consulting firm
Segal. “Therefore, we are confident that other employers will make a similar
shift. How many and in what year—whether it’s 2024 or 2025—we will have to see,
but we are fully confident that other employers will follow suit.”
Even if companies don’t flock to a pension plan, many will
likely start to think about how to better prepare employees for retirement and
how to give them a steadier supply of income in their post-work years. That’s
been a major problem in recent years, Price said. “We know there’s a retirement
problem,” he said. “There’s an opportunity for employers to think about this
differently and think about other solutions.”
Source: SHRM