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Economic Research Institute examines compensation rates and provides guidance on expected increases for the upcoming year. The fourth quarter of 2022 saw a higher level of growth at 1.39%, which is above the structure and budget growth rates predicted by their 2023 salary increase survey. Growth over the past year has been 4.14%, which is higher than the average quarterly growth of 0.63% over the past 20 years. The annual growth rate also appears to have increased from 3.69% to 4.14%. In December 2022 WorldatWork Total Rewards Association’s latest Salary Budget Planning Report, overall salary increases in the U.S. are projected to rise to 4.6% in 2023, up from an actual spend of 4.2% in 2022. This is primarily due to inflationary pressures and concerns over the tighter labor market. The report also found that more than two-thirds of companies [70%] spent more than they originally planned on pay adjustments for the past 12 months, as organizations looked to drive retention and meet employee expectations. The report also revealed that 75% of respondents are experiencing problems with attracting and retaining talent and that 67% of organizations have said that their total compensation spend had increased in 2022 compared to 2021. The Society for Human Resource Management reports similar data. The labor market is currently tight, which points towards higher compensation growth, but the inflation rate is also 7.1%, which is down 2.0% since June. The strong labor market, high inflation, and increasing interest rates are competing forces that may mean that we are reaching the peak of compensation growth. ERI expects higher compensation growth going into 2023, but with the absolute rate of growth slowing throughout the year. It's difficult to provide an exact number for how much higher than 4.0% an organization's merit increase budget should be in 2023, as it depends on various factors such as the specific industry, location, and company size. Based on these factors, it may be reasonable for organizations to plan for a merit increase budget that is slightly higher than 4.0%. It's important for organizations to do their own research and analysis of their specific circumstances and to consider the impact of inflation on their merit increase budget as well. 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.