Compensation planning for 2023
We’ve been keeping a close eye on compensation trends throughout the year, with updates in January and June 2022. We have a better picture of what pay increase budgets are looking like going into 2023. Here are some updates…
WorldatWork.org, the Total Rewards Association
- WorldatWork’s 2022-23 Salary Budget Survey revealed that salary increase budgets reached their highest level in 20 years in the United States, rising to an average of 4.1% in 2022 with a 3.8% median.
- In the spring of 2021, U.S. respondents projected that 2022 total salary increase budgets would rise modestly from 2021’s 3.0% average to a 3.3% average while the median prediction [3.0%] showed no change from 2021’s actual median increase of 3.0%.
- The higher predicted 3.3% average suggested that a portion of respondents were anticipating notably higher increase budgets going forward, perhaps as they expected to compensate for pay increases that were delayed or deferred in prior years and to address increasing labor market pressure.
Society for Human Resource Management
- If the inflation rate continues to rise in 2023, employers could be pressured to raise their salary budgets projections next year, although if the economy continues to slow, they may not have sufficient revenues to do so.
- According to pay data and software firm Payscale’s 2022-2023 Salary Budget Survey, U.S. employers report a planned base salary increase of 8.0% to upwards of 5.0% in 2023.
- According to payroll and HR software and services firm ADP’s latest National Employment Report, released Aug. 31, the year-over-year change in annual pay by U.S. employers was up 7.6%. The report used ADP’s aggregated payroll data of over 25 million U.S. employees.
- Growth in hourly wages has exceed salary raises this year. For full-time hourly employees, the Federal Reserve Bank of Atlanta tracked 6.7% hourly wage growthfor the 12 months ending in August.
Economic Resource Institute
- Start of 2022 the salary increase budgeting was typical with a 0.0-3.5% increase.
- Mid-year the world events [e.g., the pandemic, the war in Ukraine, supply chain issues, low employment, and the Great Resignation] have challenged the original 2022 budgets. Now organizations will require a competitive compensation plan and may even warrant a mid-year salary increase.
- With challenging labor markets, organization’s prior compensation decisions are being tested. It is now common to see pay increases of 4.0% or more.
- It is difficult to assess how long this will all last. It is recommended to manage 2022 increases separately, then build out a pay increase management plan that accounts for inflation for the next several years.
- Consider the following for employee retention: Competitive pay for nonexempt and lower-level employees. Provide lump sum payment or one time retention bonus to offset inflation in 2022; Analyze the market competitiveness and consider increase of pay to critical employees, at-risk roles, and high performers instead of increasing pay across-the-board
We haven’t seen this kind of pressure on wages in a generation. If you haven’t checked to see what the competition is paying, including competition from industries outside of your normal peer group such as retail, manufacturing, or logistics you may want to start with an objective market analysis of compensation.
Compensation studies are one of our specialties. We have deep experience with base compensation benchmarking, incentive program development, and total rewards. Check out our updates on workforce strategy and compensation or contact us for other helpful resources.