Driven by a hot job market and record-high inflation, HR leaders are planning to turn to larger-than-usual salary increases in 2023, new data indicates.
A new report from Salary.com, which surveyed 1,000 HR professionals, finds that nearly half of U.S. employers plan higher year-over-year budget increases next year compared to 2022. The long predominant 3% raise, which started its decline last year, has been replaced by a median raise of 4% across all employee categories, the survey finds. And a quarter of employers plan to give increases in the range of 5%–7% in 2023.
“2023 promises to be another banner year for employees seeking salary increases,” says Chris Fusco, senior vice president of compensation at Salary.com. That’s a far cry from just a couple of years ago. In 2020 when the pandemic began, Fusco adds, just under 10% of employers planned a higher salary budget increase than the prior year.
Although next year looks to be promising for employees in search of a larger paycheck, this year has been a good one for salary increases as well: The Salary.com survey found that the 2022 actual salary increases were higher than what was planned: 22% of organizations gave increases in the range of 4%–5% vs. the 12% that had planned to do so last year.
Cost-of-living increases also tended to be more generous in 2022 than in 2021, with average cost-of-living adjustments rising above 2% for the first time in many years, the survey found. It’s no wonder why: Inflation has increased about 9% year-over-year. The Salary.com survey found that smaller organizations (under 500 full-time employees) were more likely to provide COLA increases than larger organizations. Average COLA increases for smaller organizations hovered in the range of 2.5%–2.7%, higher than the typical 2% provided by larger organizations.
Increasing salary and enhancing benefits are both obvious strategies in today’s current talent war—and ones that several employers say they’re utilizing, multiple reports have found. Recent data from Willis Towers Watson found that employers are planning to up employee salaries in the biggest projected hike in 15 years—on average budgeting a 4.1% salary increase for 2023. Gartner found that 63% of executives plan to make compensation adjustments in response to high inflation, while another survey from human resources consulting firm Mercer finds that more than two-thirds of U.S. employers say they are looking to enhance their health and benefits offerings next year in order to attract and retain talent. Better healthcare access, more affordable medical care and increased family-friendly benefits are all on tap, Mercer found.
The focus on competitive salaries continues even as some analysts worry about a recession and what that may mean for salaries and other perks. The concern, for now, is not only about attracting talent, but convincing employees to stay put, industry insiders say.