Employers to Offer Record Pay Rises in 2023

A tight labor market is set to benefit employees in 2023. According to the latest Salary Budget Planning Report by consulting firm Willis Towers Watson (WTW), companies are planning record pay rises for the next year. While most companies give a 3% raise on employee salaries, they are putting aside budgets to give a raise of 4.1%, a record high since the Great Recession of 2008.

What is the average salary increase for 2022?

For 2022, US companies have been setting aside almost 3.4%, which is less than half the current inflation rate. However, despite the increase, compensation programs have failed to provide any relief to daily wage earners.

The Bureau for Labor Statistics revealed that the Consumer Price Index (CPI) soared to 9.1% in June 2022, much higher than the Dow Jones estimate of 8.8%. The 40-year-high inflation has eaten into household budgets, and when adjusted for inflation, hourly wages fell by 1% during the month. The CPI spike was mainly driven by an increase in energy and food prices, costs that cannot be avoided. In 2022, a tight labor market has resulted in a shortage of workers with jobs outnumbering available workers nearly 2 to 1. Some employees have also taken advantage of the situation to switch jobs for better pay and benefits, which has resulted in some companies losing out on top talent.

Employers are offering the biggest hike since The Great Recession.

Employee benefit costs went up quite a bit in 2020 and 2021. These factors are often not captured in salary budgets but they show an increase in employer spending.

Policymakers have struggled to come up with a solution but so far it has been a dismal year. Meanwhile, the central bank is expected to continue rising interest rates in an attempt to bring inflation under control.

Pay rises amidst a tight labor market

According to the WTW report, around two-thirds of employers have budgeted to give pay rises higher than this year in 2023. The consulting firm surveyed nearly 1,430 US companies between April and May. If implemented, the 4.1% raise would be the biggest pay bump offered by US employers since 2008. Companies are also aware that worker expectations have risen in direct proportion to the record high inflation.

The WTW survey found that many employees live paycheck to paycheck. Seventy-three percent of employees admitted that the tight labor market has forced them to reconsider employees’ salaries while 46% noted that inflation is also a major part of the decision. The current rate of inflation and labor market has companies reconsidering their compensation structure, with some admitting that they might look at salary revision twice every year.

Taking note of the labor market, employers are higher pay rises to keep their current employees happy while attracting new talent. Around seven in 10 employers admitted that they have also started offering better flexibility, sign-on bonuses, and remote working options where applicable.

Hatti Johansson, research director of rewards and data intelligence at Willis Towers Watson stated, “Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive.”

Although the pay rises could be the highest on record in almost 15 years, they are not enough to make up for inflation. Companies often tend to offer better employee salaries for high demand jobs and individuals. They also seek to keep overall pay levels stable so that the firm can weather unexpected events like a recession or a pandemic.

The current US government announced on July 19 that gas prices have been continually dropping for over a month and that they are working on reducing them even further. The president has repeatedly called on oil and gas companies to lower their prices while assuring citizens that tackling inflation is his top priority.

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