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Employers Get Ready to Raise Pay In 2023  

The trend of rising salaries is expected to see no letup next year, driven by a combination of inflation and a labor market where workers still have plenty of leverage.

arrows 311332 640 smallU.S salaries are expected to increase by 4.6% in the coming year, up from the 4.2% salary increases in 2022, WTW reveals in its salary budget planning report. The global survey of companies in 135 countries, including 1,550 organizations in the U.S., found that 77% of U.S. employers expect to boost pay in response to inflation, while 68% are acting in anticipation of a still tight job market.

Three-quarters of respondents also say they are having trouble wooing over talent, nearly three-times higher than was the case in 2020. To bolster their recruiting efforts, 57% of respondents have given candidates higher salary ranges and 76% are considering boosting their salary ranges by 2% to 5%. “As inflation continues to rise and the threat of an economic downturn looms, companies are using a range of measures to support their staff during this time,” said Hatti Johansson, WTW research director, Reward Data Intelligence. “Organizations should prioritize their actions based on the needs of both employers and employees and pay close attention to market data to inform any changes.”

Employers are also trying to create a more inviting environment with 67% of respondents offering greater workplace flexibility and 61% focusing more attention on diversity, equity and inclusion. “With attraction and retention issues persisting, employers should consider the overall employee experience and not just salary increases,” says Lesli Jennings, WTW North America leader, Work Rewards and Careers. “By focusing on health and wellness benefits, workplace flexibility, careers and DEI, organizations can position themselves as the employer of choice for their current and prospective employees.”

Gartner in its own survey in September and October found that employers in North America expect to offer merit pay increases averaging 7%, CNN reports. “Certain jobs will get a disproportionate share [of the salary budget increase] because they are critical or difficult to hire for,” says Carolina Valencia, a vice president in the human resource practice at Gartner.

Another recent Gartner survey found that less than one-third of workers think they are fairly compensated, while 34% think they are paid equitably. That survey of 3,523 employees in the second quarter also revealed that those who view their salary as inequitable are 15% less likely to stay at the same employer and 13% less likely to be engaged with their job compared with their counterparts who think they are paid fairly.

“Employees’ sensitivity to perceived pay gaps is being exacerbated by today’s economic conditions, including rising inflation, and the hot labor market, which is causing a shift in compensation between tenured employees and new hires,” said Tony Guadagni, senior principal in the Gartner HR practice.

Inflation has cooled down a bit, from a consumer price index hitting a high of 9.1% as of the end of June, to 7.7% as of the end of October, reports the Society for Human Resource Management. But that still trails behind the pay increases that workers have seen.

Gartner’s Guadagni noted that trust is a main driver in how employees feel about their compensation. “Employee perceptions of pay equity aren’t rooted in compensation,” he said. “Instead, the main driver of perception is organizational trust–when employees don’t trust their employers, they don’t believe their pay is fair or equitable.”

Employers also are likely to encounter a younger generation of workers who have higher expectations to get help to deal with rising costs, Randstad finds in new research. The firm surveyed 7,000 people in the U.S., U.K., Australia, Germany and Netherlands spanning from Gen Z, Millennials and Baby Boomers.

Among the Gen Z and Millennial respondents, 57% said it is up to the government or employers to help them shoulder increasing costs compared with 44% of Baby Boomers. One-fifth of U.S. workers lay that responsibility on their employers, compared with 9% of their U.K. and Australian and 5% of their German counterparts. “While the economic environment may encourage people to stick with their employer, causing a slowdown in the "Great Rotation," businesses mustn't miss out on the unique opportunity to create a more content and productive workforce,” said Sander van 't Noordende, CEO of Randstad. “Those who feel supported now, are likely to remain loyal even when times aren't as tough.”

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