Compensation Planning for 2023: Salary Reviews and Raises – IA Magazine

Compensation planning for 2023 was not your average annual budgeting exercise. This was not the sleepy, spreadsheet-only ritual where someone dusted off last year’s merit matrix, added a polite 3%, and called it strategy. Employers entered 2023 with a messier reality: inflation had eaten away at purchasing power, labor markets were still competitive in many roles, employees had sharper expectations around fairness, and leaders had to balance retention with financial discipline. In other words, compensation planning stopped being a back-office task and became a business survival skill.

That is exactly why salary reviews and raises needed a more thoughtful approach in 2023. A strong compensation plan was no longer just about “giving raises.” It was about deciding who should receive increases, why they should receive them, how much was sustainable, and how the organization would explain those decisions without sounding like a robot wearing a necktie. For insurance agencies, professional service firms, and mid-sized employers alike, the best compensation plans combined market data, internal equity, performance differentiation, and practical communication.

Why 2023 Compensation Planning Felt Different

The first big issue was the mismatch between wage growth and real purchasing power. Many employers planned salary increase budgets that were noticeably higher than the old pre-pandemic norm, yet employees still felt squeezed because everyday costs remained stubbornly high. That created a familiar workplace tension: employers were saying, “This is one of the biggest raise budgets we’ve approved in years,” while employees were saying, “That’s cute, but groceries still cost a fortune.” Both sides were telling the truth.

The second issue was labor-market pressure. Even as hiring cooled in some sectors, employers still struggled to fill specialized roles and retain strong performers. Customer-facing staff, technical talent, producers, account managers, operations specialists, and revenue-driving employees were often expensive to replace. That meant compensation planning could not be treated as a blanket exercise. Organizations had to identify critical roles, high-risk populations, and pockets of turnover before finalizing salary budgets.

The third issue was fairness. In 2023, employees were much more likely to compare pay, ask about pay bands, and question why new hires were being brought in at rates close to or above long-tenured staff. Salary compression, pay equity concerns, and transparency expectations all moved from “important HR topics” to “things people discuss in the hallway right after lunch.” That made annual salary reviews essential, not optional.

Start with Salary Reviews Before Talking About Raises

A smart 2023 compensation plan started with diagnosis, not distribution. Before leaders debated whether merit budgets should land at 3.5%, 4%, or 4.5%, they needed to understand where pay stood in the first place. Salary reviews were the foundation of the whole process.

Refresh market pricing

Every employer should begin by reviewing the external market for core roles. This means checking current compensation data for positions that matter most to the organization: account managers, service representatives, underwriters, sales staff, claims support, finance roles, administrative leaders, and any hard-to-fill specialist jobs. If a company built salary ranges three years ago and has not touched them since, that is not a compensation strategy. That is a historical artifact.

Market pricing matters because the labor market can shift quickly. A role that was comfortably paid at the 50th percentile in one year may be below market the next, especially when recruiting pressure rises or remote hiring expands the competitive landscape. In 2023, many organizations discovered that their salary structures looked fine on paper but were already lagging the real market.

Check for salary compression

Once external pricing is reviewed, the next step is internal comparison. This is where uncomfortable truths often wander into the meeting room. Are new hires being paid nearly the same as experienced employees? Are dependable performers sitting too low in the range because their pay grew slowly over time? Are supervisors earning only slightly more than the employees they manage? These are classic signs of salary compression.

Compression is dangerous because it undermines morale quietly at first and loudly later. Employees do not always march into HR carrying spreadsheets and righteous fury. More often, they update LinkedIn, answer recruiter messages, and mentally check out. A salary review that identifies compression early gives leaders a chance to make targeted adjustments before turnover becomes the more expensive solution.

Review pay ranges and structure movement

Salary ranges themselves also deserve attention. A range midpoint that no longer reflects the market will eventually cause trouble, even if individual raises are handled well. In 2023, employers increasingly had to decide whether to move salary structures upward, not just allocate merit increases within existing bands. That distinction matters. If the entire market has moved, but your structure has not, then your employees can receive raises and still remain behind.

For that reason, compensation planning should separate three questions: Are individual employees paid fairly versus peers? Are individual employees paid competitively versus the market? And are the ranges themselves still credible? Those are related questions, but they are not the same question.

What Types of Raises Belonged in a 2023 Plan?

Not all salary increases serve the same purpose. One of the biggest mistakes employers make is treating every raise like it is a generic scoop of vanilla ice cream. Pleasant, sure. Strategic, no.

Merit increases

Merit increases remain the backbone of most salary review cycles because they reward performance. Done well, they reinforce accountability, motivate stronger contributions, and help top performers feel seen. Done poorly, they become tiny percentage differences that nobody notices except the payroll software.

In 2023, merit budgets had to work harder. Because many employers had limited room to differentiate, the best plans focused on meaningful distinction where possible. If the gap between an exceptional performer and an average performer is too small to feel real, the company may technically have a merit program but emotionally have an equal-disappointment program. Managers needed tools, calibration, and courage to award increases based on actual contribution, not just habit.

Market adjustments

Market adjustments became especially important in 2023. These are increases designed to move pay toward competitive market levels, regardless of annual performance timing. They are often necessary for jobs that became harder to recruit, harder to retain, or clearly misaligned with external rates. Unlike a merit raise, a market adjustment is not saying, “Great job.” It is saying, “We cannot pretend the market did not move.”

For example, if an experienced commercial lines account manager is underpaid relative to current market conditions, a standard merit increase may not solve the problem. A targeted market adjustment may be the more honest and effective move.

Equity adjustments

Equity adjustments are different again. These increases correct internal inconsistencies such as compression, tenure-related misalignment, or pay inequities discovered through review. Organizations often resist them because they feel messy. But ignoring them is usually messier. When employees realize that loyalty has become a pay disadvantage, trust takes a hit.

Across-the-board increases and COLA-style thinking

Some employers also considered across-the-board increases or cost-of-living style moves in 2023. These can be useful when inflation is dominating employee concerns, but they should be used carefully. A uniform percentage is simple to administer, yet it does little to distinguish performance and can lock in existing inequities. Broad adjustments may have a place, but they should rarely replace a full compensation strategy.

How to Build a Practical Salary Budget for 2023

A workable compensation budget in 2023 usually had multiple buckets instead of one giant pile labeled “raises.” That approach gave employers flexibility and reduced the temptation to overspend in the wrong places.

Bucket 1: Merit budget

Set aside the main portion of the increase budget for performance-based salary increases. This should align with business results, performance philosophy, and the need to reward top contributors more meaningfully than average performers.

Bucket 2: Market and retention adjustments

Reserve separate dollars for roles where recruitment or retention risk is highest. This is especially useful for positions that have moved rapidly in the market or are central to client retention, revenue, or operational continuity.

Bucket 3: Equity corrections

Leave room for corrections uncovered during salary review. These may involve compression, tenure gaps, or pay disparities that need attention now rather than next year. Waiting another cycle can turn a fixable issue into a resignation letter.

Bucket 4: Incentive and bonus planning

Base pay is only part of compensation. Employers should also review incentive plans, bonus opportunities, and recognition programs. In some cases, variable pay offers more flexibility than permanent base salary increases. A company may not be able to push every salary dramatically higher, but it may be able to reward strong results through incentives without permanently raising fixed costs.

That said, variable pay should support strategy, not disguise weak base pay. If salaries are clearly off-market, an annual bonus alone will not magically convert frustration into loyalty.

Communication Matters More Than Leaders Think

One underrated part of compensation planning is how the plan gets explained. Employees do not need a graduate seminar in compensation philosophy, but they do need clarity. They want to know what the company values, how pay decisions are made, what role performance plays, and whether pay ranges are rooted in actual market data. Silence creates stories. And in workplaces, the stories people invent are usually more dramatic than the truth.

Managers should be prepared to explain the difference between merit increases, market adjustments, promotions, and equity corrections. They should also know how to discuss salary ranges without sounding evasive. If an employer says it values transparency but cannot explain why one role sits in a certain pay band, that “transparency” will age poorly.

In 2023, compensation communication also needed empathy. Employees were not reacting to spreadsheets in a vacuum. They were reacting as people paying rent, buying groceries, and making financial tradeoffs. Leaders did not need to promise impossible increases, but they did need to acknowledge reality and explain the organization’s approach honestly.

Common Compensation Planning Mistakes to Avoid

Mistake one: using a single percentage for everyone and calling it strategy. Simplicity is nice. So is not damaging your pay structure.

Mistake two: focusing only on new-hire offers and ignoring current employees. Recruiting is important, but constantly chasing the market for new talent while neglecting loyal staff is how compression becomes a full-time personality trait.

Mistake three: confusing activity with administration. Running merit worksheets is not the same as managing compensation well. Strong salary administration requires market reviews, range reviews, pay equity analysis, and follow-through.

Mistake four: failing to identify critical roles. Not every position carries the same business risk. A targeted plan is usually smarter than a perfectly even one.

Mistake five: ignoring manager capability. The best compensation framework in the world will wobble if managers cannot evaluate performance, explain pay decisions, or flag retention risk.

A Realistic Example of a 2023 Compensation Plan

Imagine a mid-sized insurance agency preparing for its 2023 review cycle. Leadership knows replacement hiring has become costly, especially for experienced account managers and producers. The agency reviews external compensation data, compares current pay to internal peers, and discovers three things: several long-tenured employees are below market, a few high performers are paid too close to average performers, and newly hired service staff entered at rates that created compression with veteran employees.

Instead of applying one flat percentage to everyone, the agency uses a layered plan. It sets a merit budget for all eligible employees, adds targeted market adjustments for key service and sales roles, and reserves a smaller pool for compression and equity fixes. Managers receive talking points explaining how each increase type works. Employees with the strongest results receive differentiated merit treatment. Employees whose pay is clearly behind market receive separate adjustments. Staff who are already appropriately positioned in range still receive fair merit treatment, but not automatic catch-up money.

That approach does not eliminate every hard conversation. No compensation plan does. But it is much stronger than pretending one number can solve performance, retention, fairness, and market competitiveness at the same time.

Practical Experiences and Lessons from the Field

One of the clearest lessons from 2023 compensation planning was that employees do not judge pay decisions only by the percentage on paper. They judge them by context. A 4% raise can feel thoughtful when it comes with a credible explanation, visible market alignment, and confidence that pay is being managed fairly. The exact same 4% can feel insulting when an employee has watched three new hires come in near their salary, taken on more responsibility, and heard leadership say, “We value our people,” with all the emotional sincerity of an airport parking receipt.

Another real-world lesson is that organizations often discover compensation problems only when they finally look closely. Leaders sometimes assume pay practices are mostly fine because they have not heard loud complaints. Then the salary review begins, and suddenly the company finds old ranges, inconsistent starting pay, supervisors paid too close to staff, and top performers whose compensation has drifted below market because they stayed loyal. Compensation issues are sneaky like that. They do not always knock at the door. Sometimes they move into the attic and start making noise at midnight.

Managers also learned that performance conversations and pay conversations are deeply connected but not identical. Employees want to believe performance matters, but they also want fairness. In practice, that means compensation planning works best when leaders can say two things at once: “Your performance rating influenced this increase,” and “We also reviewed market position and internal alignment.” Employees are more likely to trust the process when they see that the company is looking at both contribution and competitiveness.

There was also a practical budgeting lesson. Employers that separated merit dollars from market and equity dollars made better decisions. They avoided the trap of overusing merit increases to solve structural issues. Once a company tries to fix compression, retention, market lag, and recognition all with one small merit budget, the result is usually disappointment seasoned with confusion.

Finally, the biggest experience-based lesson from 2023 was that compensation planning is not really about money alone. It is about trust, clarity, and business priorities. Pay is how organizations make values visible. When a company reviews salaries carefully, moves ranges when needed, differentiates performance honestly, fixes inequities, and communicates clearly, employees notice. And when a company avoids those things, employees notice that toooften right before they take a recruiter’s call.

Conclusion

Compensation planning for 2023 required more than a raise budget and a hopeful mood. It required salary reviews, market analysis, structure maintenance, performance differentiation, and targeted corrections for compression and pay inequities. The strongest employers treated compensation as an ongoing management discipline rather than a once-a-year ceremony with spreadsheets and stale coffee.

For organizations that wanted to stay competitive, the message was clear: review pay before problems escalate, distinguish between different types of increases, protect critical talent, and explain decisions like a human being. Salary reviews and raises in 2023 were not just about what employers could afford. They were about what kind of workplace they were trying to build.