The U.S. labor market has more available jobs than individuals to fill them, therefore salary budgets are expected to rise in 2023. WTW’s Salary Budget Planning Report indicated that companies are budgeting a 4.1% average salary rise for 2023, up from 4.0% in 2022. The biggest gains since 2008.
According to the report, two-fifths (41%) of U.S. firms have increased their spending since early this year. Less than half of companies (45%) stick to their compensation budgets. Some employers are increasing salaries more often. 36% have already increased or plan to boost salary increases. 92% of responders adjust pay twice a year.
Nearly three in four respondents (73%) see a tighter labor market as the key driver for higher spending. 46% of respondents said employees expect inflation-driven raises, and 28% altered budgets for better financial results.
Compounding economic conditions and new ways of working cause firms to reassess pay expenditures to remain competitive, says Hatti Johansson, research director, Rewards Data Intelligence, WTW. In a dynamic world, firms must have a clear compensation strategy and a deep understanding of compensation growth variables. If a company plans to boost budgets, it’s vital to be prepared to award and explain pay changes swiftly and effectively.
According to the report, firms continue to face attraction and retention concerns, but fewer respondents forecast the same next year. 94% of respondents have trouble hiring talent this year, but only 40% predict trouble in 2023. Similarly, 89% of employers had trouble retaining staff this year, but that percentage should drop to 60% next year.
Many companies use non-monetary incentives to attract talent. 69% of respondents have improved job flexibility, and 19% want to or are considering it. Six in 10 respondents (59%) have emphasized diversity, equality, and inclusion (DEI), and 24 percent plan to in the next few years. 49% of organizations continue to offer sign-on bonuses and equity/long-term incentive awards, and 21% plan to do so in the next few years.
Talent retention efforts are underway. 58% of organizations have emphasized DEI to retain more people, and 26% plan or are considering it. Half (50%) have enhanced remote work flexibility, and 25% plan or are considering it. Nearly 40% have adjusted their compensation programs (base wage, short- and long-term incentive plans), and 35% are planning or considering. Over 36% have improved their employees’ experience, and 45% are planned or contemplating it.
With a likely recession, high inflation, and talent supply difficulties, firms must get innovative to attract and retain talent, says Catherine Hartmann, global practice leader, Work, Rewards & Careers, WTW. “The workforce is varied and energetic. Employers must balance employee preferences and needs with a quality employee experience.
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