Pay raises expected in 2023 amid tight labor market and inflation
WTW’s Salary Budget and Planning Report found that companies are budgeting an overall average increase of 4.1% for 2023, which will result in pay raises.
Some good news for workers looking for work or struggling with crippling high inflation rates: salary budgets in 2023 are expected to increase. WTW’s Salary Budget and Planning Report found that companies are budgeting an overall average increase of 4.1% for 2023, compared with the average actual 4.0% increase in 2022 – the largest increases since 2008.
“Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive,” says Hatti Johansson, research director, Rewards Data Intelligence at WTW. “With such a dynamic environment, it’s imperative for organizations not only to have a clear compensation strategy but also a keen understanding and appreciation of the factors that influence compensation growth.”
Concerns over a tighter labor market seem to be the main driver for the higher budgets, with nearly 3 in 4 respondents (73%) citing this as their top factor. Additionally, 46% of respondents cite employee expectations for higher increases that are driven by inflation, and 28% want to adjust their budgets in anticipation of stronger financial results.
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The global advisory firm also says attraction and retention challenges continue to hinder organizations, although fewer respondents expect those difficulties to be at the same level next year. Ninety-four percent are experiencing difficulties attracting talent this year, but only 40% expect difficulty in 2023. Similarly, 89% of companies report difficulty retaining workers this year, but that number is expected to drop to just under 60% next year.
Companies are also looking to attract and retain employees through non-monetary ways. For example, 69% of respondents have increased workplace flexibility, and 19% are planning or considering doing so in the next couple of years. Six in 10 respondents (59%) have placed a broader emphasis on diversity, equity and inclusion (DE&I), and 24% are planning or considering doing so in the next few years. Additionally, 49% of companies continue to enhance recruitment offers with sign-on bonuses and equity/long-term incentive awards, while over 21% are planning or considering doing so in the next few years.
“With a possible recession looming, continued high inflation and employers grappling with talent supply challenges, organizations need to get more creative to address attraction and retention challenges,” says Catherine Hartmann, global practice leader, Work, Rewards & Careers with WTW.