Salary budget increases continue to accelerate
Back in September 2021 we shared that HR/Compensation professionals were expecting a 3.30% increase to salary budgets for 2022. In January 2022 we provided an update that increases were approaching 5.0%. WorldatWork.org, the Total Rewards Association, has recently completed a new survey and is showing increases are now expected to be over 5.0% for the first time in more than 20 years. The last time they were 5% or more was in 1991.
Additionally, they discovered that the average pay increase for job switchers in 2021 was about 8% overall and over 12% in some sectors. The existing labor shortage combined with an uptick in employee resignations, a trend known as ‘the Great Resignation,’ and resulted in many organizations scrambling for workers.
To mitigate the expense of recruiting replacements for employees who depart for greener pastures, consider these tactics:
- Consider providing extra financial support for employees who commute by car or drive as part of their job duties. This support can be delivered in the form of gas cards, parking vouchers or passes for public transportation to encourage its use.
- If increasing your merit budget is not feasible at this time, consider doing a mid-year assessment to determine if a second pay adjustment is needed.
- This is an important time to identify personnel in non-executive roles who are mission critical and/or top performers and prioritize them for a generous enough raise to retain them.
- While there are always exceptions, in general, lower-wage employees are the ones most affected by inflation, and the dollar value of their salary increase generally results in a minimal impact on purchasing power. As such, focus salary increase dollars on those who are most impacted.
- Allocating more of the budget to pay increases for lower-paid employees can do more than just promote retention, it can help differentiate your organization as one that prioritizes fair compensation practices and shows you appreciate your employees.
Retaining top talent needs to be a priority in 2022. Your employees have options, and many are willing to leave one career for another if it means more competitive pay. 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.