Despite the likelihood of the recession that’s looming in the not-too-distant future, 64% of U.S. companies plan to budget for an overall average salary increase of 4.1% in 2023. That’s up slightly from 2022 (4.0%) and the highest since the Great Recession of 2008.
And it’s all thanks to the Great Resignation that created a tight labor market that has more job openings than bodies to fill them.
The Salary Budget Planning Report published on July 13, 2022, by WTW (formerly Willis Towers Watson), a global advisory and risk management firm, shared 22,570 responses from companies across 168 countries – including 1,430 employees in the U.S.
Raising budgets to attract, retain people
Forty-one percent of U.S. companies have already increased their budgets from what was set at the beginning of the year. And 36% have already increased or plan to increase how often they raise salaries. Ninety-two percent have or will adjust salaries twice per year.
“Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive,” said Hatti Johansson, research director, Rewards Data Intelligence, WTW. “With 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.”
The goal of raising salary budgets is to attract and retain employees which have continued to challenge employers. But there’s a little light at the end of the tunnel. While 94% of respondents said they are having issues attracting talent this year, only 40% expect to have the same problem in 2023. In that same realm, 89% reported they had problems retaining talent this year, but only 60% believe they’ll have the same challenges in 2023.
Not all companies, however, are raising their salary budgets for 2023. Some are taking non-monetary actions to attract talent like:
- Increasing workplace flexibility (69%) and 19% are planning/considering doing so in the next few years.
- Upping their game when it comes to diversity, equity and inclusion (DEI) (59%) and 24% are planning/considering doing so in the next few years.
- Boosting their recruitment game with sign-on bonuses and equity/long-term incentive awards (49%) and more than 21% are planning/considering doing so in the next few years.
The same goes for retaining talent with non-monetary actions:
- 58% of respondents have broadened their emphasis on DEI to retain more talent, and over 26% are planning or considering doing so.
- 50% have increased the flexibility for remote work and 25% are planning or considering doing so in the future.
- 40% have changed their compensation programs (e.g., base salary and short- and long-term incentive plans) and another 35% are planning or considering.
- 36% have made changes to improve their employees’ experience and 45% are planning or considering doing so.
“With a possible recession looming, continued high inflation and employers grappling with talent supply challenges, organizations need to get more creative to address attraction and retention challenges,” said Catherine Hartmann, global practice leader, Work, Rewards & Careers, WTW. “The workforce is composed of a diverse employee population, each with its unique dynamics. Employers are challenged to meet their preferences and needs while delivering a superior employee experience for all.