In response to a tight labor market, employers are planning to up employee salaries in the biggest projected hike in 15 years, new data from Willis Towers Watson finds.
Although it’s a new recent high, it’s not by much: Companies, on average, are budgeting a 4.1% salary increase for 2023, just above this year’s average 4% increase. The 2022 and 2023 salary increases are the largest since the Great Recession of 2008, according to the consulting firm, which surveyed 1,430 employers for insights in April and May.
Nearly two in three (64%) U.S. companies are budgeting for higher pay raises than last year, while two-fifths (41%) increased their budgets since original projections were made earlier this year, the survey found. Less than half of companies (45%) are sticking with the pay budgets they set at the start of the year.
Concerns over the hot job market—which is seeing a record number of employees leave their jobs for better opportunities—are overwhelmingly driving salary increases, with nearly three in four survey respondents (73%) citing the competitive market as their top factor. That’s followed by employee expectations for higher increases that are driven by inflation (cited by 46% of respondents) and anticipation of stronger financial results (cited by 28%).
“Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive,” says Hatti Johansson, research director, rewards data intelligence, at WTW.
Although inflation plays a role in employer plans for salary increases, the planned raises are far below the pace of inflation. The consumer price index soared 9.1% year-over-year in June, the Bureau of Labor Statistics reported last week, a 40-year high. With employees shelling out steep costs for housing, gas, food and other items, even a 4.1% salary increase won’t be the biggest reprieve for many workers.
That may be why employers also are focusing on additional ways to help workers, as well as attract and retain talent, aside from a one-time salary increase, including bonuses, reviewing employees’ salaries more frequently and additional benefits.
Some companies say they’re making more frequent salary increase adjustments, according to the Willis Towers Watson survey: More than one-third (36%) have already increased or plan to increase how often they raise salaries. Among these respondents, 92% either already have or will adjust salaries twice per year.
Johansson says that, in such a dynamic environment, it’s imperative for organizations “not only to have a clear compensation strategy but also a keen understanding and appreciation of the factors that influence compensation growth.”
And if an organization is planning to increase budgets, “it’s best to be prepared as to how to award and communicate pay changes as quickly and effectively as possible,” she says.
The survey also found that 69% of respondents have increased workplace flexibility, and 19% are planning or considering doing so in the next couple of years. Experts say not only are flexibility and remote work options popular among employees, but they can help put cash back in employees’ pocketbooks as allowing workers to work from home, rather than the office, allows them more control over pricey commutes.