Salary Considerations For 2022: Annual Increases and Yearly Reviews
by Molly Peck on Mon, Oct 3, 2022
Although salary increase budgets declined across industries in 2021, average raises in 2022 are expected to significantly exceed original projections of 3.0-3.5%. Recent research by The Conference Board reveals that most executives anticipate salary increase budgets will average 3.9%. In sum, this represents a nearly 1% increase in original 2022 budget expectations and an over 1.5% increase compared to 2021 budgets. Overall wage growth is also expected to hover above 4% throughout 2022 and into 2023, particularly as issues with inflation and a possible recession further increase cost of living and compensation packages for qualified candidates.
To remain competitive in attracting new job prospects and retaining existing employees, employers must first understand trends in annual salary increases, inflation projections, and how other businesses are leveraging total compensation and incentives to improve company culture and prevent turnover.
Wage Growth and Inflation Interrelated
As salary increase budgets rise to address the economic and labor factors we’ve already discussed, certain industries are experiencing unprecedented wage growth, particularly in food services, retail, and transportation. Production and manual labor professions are set to experience even greater wage increases: 0.3% higher than the already high average across other industries. Nevertheless, real wage growth – when adjusted to account for inflation – has in some cases declined, creating wage compression or a “wage spiral,” in which heightened wages and increased cost-of-living expenses are symbiotic and detrimental to concrete wage improvements. Ultimately, salary increases alone are struggling to exceed inflation-related increases in cost of living. While this is a source of frustration for employees, it also creates a situation in which company-wide pay raises are unfeasible for certain businesses. As a result, many businesses are resorting to a more eclectic range of solutions to remain competitive in their industry.
Considerations and Strategies for Employers
Employers should be aware that workers in the U.S. experience – on average – a 4.3% pay raise as a result of changing jobs, with some estimates closer to nearly 6%. This data, coupled with recent research indicating that 51% of workers feel that they are paid below market value, should impress the value of prioritizing employee retention, especially over the coming months.
Marking a significant shift in salary wage budgeting, 97% of organizations are raising their salary increase budgets in 2022, with 41% raising at a higher level than in 2021, and 12% planning budget increases of 4-5% that should, based on current projections, successfully exceed inflationary adjustments and represent real wage growth for employees.
Recognizing and Rewarding High-Performance Employees
Due to the difficulty for most companies to institute company-wide raises, some businesses are implementing a more segmented approach. Namely, recent data suggests that many employers are emphasizing higher-than-average pay raises for high-performing employees. This includes hourly workers, support staff, as well as professional and management employees, whose raises are up 2% compared to average-performing colleagues. Broadly, 15% more companies are also using merit- and performance-based bonuses to incentivize performance, and 25% more companies are using variable-pay incentive bonuses through bonus budgets that are 10% higher than in 2021.
A recent Grant Thornton survey also indicates that nearly 70% of companies have increased the number of employees eligible for cash bonuses in 2022 and beyond, with over 50% of the companies surveyed reporting that overall merit increases within their company will rise an additional 5-6%. In keeping with these trends, The Economic Research Institute recommends the use of lump-sum payments or one-time retention bonuses, particularly for lower-level exempt and nonexempt employees who may be most affected by inflation.
Alternative Incentives and Market Research
Many companies are also considering the efficacy of benefits like tuition reimbursement, spot awards, gift certificates and other strategies to incentivize high performance and ensure employee retention. On a more foundational level, employers are recognizing growing data showing, for instance, that 51% of full-time employees would bypass a 10-20% salary increase in exchange for more scheduling flexibility or remote/hybrid work flexibility. Similarly, companies are generating ways to help employees enjoy more training opportunities, time off, family accommodations, and general improvements to work-life balance. This positions them to remain competitive in their industries and appealing to job seekers, regardless of their ability to offer company-wide raises that outpace inflation.
Nevertheless, companies should jointly examine how competitive their base pay and total rewards plans are relative to the industry in which they operate. With salary increase budgets expected to climb (on average) by 4.1% in 2023, businesses need to utilize every tool available to find wage-related and benefits-related incentives that ensure employee satisfaction.
For more on this subject, explore our related article on Innovative Benefits to consider inventive ways your business can improve employee retention while attracting top talent.
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