Salary budgets for US employees are expected to rise in 2023, owing primarily to a labor market with more open positions than people to fill them. According to the Salary Budget Planning Report from leading global advisory, broking, and solutions firm WTW, companies are budgeting an overall average increase of 4.1 percent for 2023, compared to the average actual increase of 4.0 percent in 2022. These are the most significant increases since 2008.
According to the report, nearly two-thirds of U.S. employers (64 percent) have budgeted for higher employee pay raises than last year, and two-fifths (41 percent) have increased their budgets since initial projections were made earlier this year. Less than half of businesses (45%) stick to the pay budgets they set at the start of the year. Some businesses are also making more frequent salary increases. More than one-third (36%) have already increased or plan to increase the frequency with which they raise salaries. The vast majority (92 percent) of those polled have or will adjust their salaries twice a year.
Concerns about a tightening labor market appear to be the primary driver of higher budgets, with nearly three-quarters of respondents (73 percent) citing this as their top factor. Furthermore, 46 percent of respondents mentioned employee expectations for higher raises due to inflation, and 28 percent adjusted their budgets in anticipation of better financial results.
“Compounding economic conditions and new ways of working force organizations to constantly reassess their salary budgets in order to remain competitive,” said Hatti Johansson, research director, WTW Rewards Data Intelligence. “In such a volatile environment, organizations must have not only a clear compensation strategy but also a keen understanding and appreciation of the factors that influence compensation growth.” Furthermore, if an organization intends to increase its budget, it should be prepared to award and communicate pay changes as quickly and effectively as possible.”
According to the survey, organizations continue to face attraction and retention challenges, though fewer respondents expect the same level of difficulty next year. Over 90% of respondents (94%) are having difficulty attracting talent this year, but only 40% expect to have difficulty in 2023. Similarly, while 89 percent of businesses reported difficulty retaining employees this year, that figure is expected to fall to just under 60 percent next year.
Indeed, many businesses have taken or plan to take non-monetary measures to attract talent. For example, 69 percent of respondents have increased workplace flexibility, and 19 percent plan or intend to do so in the coming years. Six in ten respondents (59%) have increased their emphasis on diversity, equity, and inclusion (DEI), and 24 percent plan to or are considering doing so in the coming years. Furthermore, 49 percent of companies continue to improve recruitment offers with sign-on bonuses and equity/long-term incentive awards, while more than 21 percent plan to or are considering doing so in the coming years.
Efforts are also being made to retain talent. Almost three-fifths (58%) of companies have increased their focus on DEI in order to retain more talent, and more than 26 percent are planning or considering doing so. Furthermore, half (50%) have increased the flexibility for remote work, and 25% plan to or are considering doing so in the future. Almost 40% have changed their compensation programs (for example, base salary and short- and long-term incentive plans), and another 35% are planning or considering doing so. Over 36% have made changes to improve the experience of their employees, and 45 percent are planning or considering doing so.
“With a possible recession looming, continued high inflation, and employers grappling with talent supply challenges,” said Catherine Hartmann, global practice leader, Work, Rewards & Careers, WTW. “The workforce is made up of a diverse workforce, each with their own set of dynamics.” Employers must meet their preferences and needs while providing a superior employee experience for all.”
About the Survey
WTW’s Reward Data Intelligence practice creates the Salary Budget Planning Report. The survey was carried out in April and May of 2022. Approximately 22,570 responses were received from companies in 168 countries around the world. In the United States, 1,430 organizations responded.