Updated on September 27, 2022
Three national human resources professional organizations have released their predictions of salary increases for 2023. Their results show that while recruiting and turnover are expected to ease slightly, high salary increases will continue into 2023.
When I first released this column on August 16, 2022, only Willis Towers Watson (WTW) and Payscale released their salary surveys. The years of the three percent salary increase are over. Now Salary.com has released its survey and found that the medium increase for 2022 will be four percent (like the results of WTW and Payscale), with some one-quarter of organizations planning five to seven percent increases in 2023.
As you will see, organizations need to consider other methods – such as like improving their organizational culture — to improve employee retention. Pay alone won’t do it.
There is another major issue for compensation experts to consider. California, New York, Rhode Island, and Washington plan to join Colorado in requiring salary ranges on job postings. This public accountability will provide organizations with more to consider as they do salary planning for 2023. These regulation changes will lay bare competitive pay standing of companies and therefore raise internal pay equity issues.
(Rhode Island’s law requires the information to be disclosed to interviewed job candidates who ask for it. California governor Gavin Newsome has until September 30 to sign the legislation or let it become law without his signature. I believe he will sign it.)
And here’s another measure: companies are offering more hybrid work models, singing bonuses, and improving diversity and inclusion efforts to improve their ability to recruit and retain employees.
Let’s begin by reviewing three reports on 2023 salary budgets.
Willis Towers Watson Survey
Willis Towers Watson (WTW) reports that employers are planning an average salary increase for exempt employees of 4.1 percent, slightly up from last year’s four percent.
US respondents to Payscale’s survey project an average exempt employee salary increase of 3.8 percent for 2023. Within some industries, base salary increases for 2023 are expected to be even higher, such as 4.7 percent in engineering and science, 4.3 percent in food, beverage, and hospitality, and 4.2 percent in technology and software.
With US inflation running at a 40-year high after dipping from 9.1 percent in June to 8.3 percent in August and a continued tight labor market with 3.7 percent unemployment in July, it is no wonder that survey participants for both organizations are predicting continued higher salary increases. Even so, employees continue to fall behind inflation despite the long-term labor shortage (along with Covid-19 safety fears in 2020 and 2021) driving up wages. And as you will see, while employers expect some relief from record high turnover and difficulties hiring employees due to the two-quarter slowdown in US GDP, the improvement is not enough to dampen salary increases for 2023.
More from the Willis Towers Watson Survey
According to WTW’s report:
- Nearly two in three (64 percent) US employers have budgeted for higher employee pay raises than last year.
- Two-fifths (41 percent) have increased their budgets since original projections were made earlier this year.
- Fewer than half of companies (45 percent) are sticking with the pay budgets they set at the start of the year.
- Some companies are also making more frequent salary increase adjustments.
- More than one-third (36 percent) have already increased or plan to increase how often they raise salaries. Among those respondents, the vast majority (92 percent) have or will adjust salaries twice per year.
Additionally, WTW reports that attraction and retention challenges continue to plague organizations, although fewer respondents expect those difficulties to be at the same level in 2023. According to survey results:
- More than nine in 10 respondents (94 percent) are experiencing difficulties attracting talent this year, but only 40 percent expect difficulty in 2023.
- Similarly, 89 percent of companies reported difficulty retaining workers this year, but that number is expected to drop to just under 60 percent next year.
Companies are taking non-monetary actions to attract and retain talent
WTW reports that many companies have taken non-monetary actions to retain and attract talent. Consider the following:
- Sixty-nine percent of respondents have increased workplace flexibility, and 19 percent are planning to or considering doing the same in the next couple of years.
- Six in 10 WTW respondents (59 percent) have placed a broader emphasis on diversity, equity, and inclusion (DEI), and 24 percent are planning to or considering doing the same in the next few years.
- Additionally, 49 percent of companies continue to enhance recruitment offers with sign-on bonuses and equity/long-term incentive awards, while more than 21 percent are planning to or considering doing the same in the next few years.
- To improve retention, more than 36 percent have made changes to improve their employees’ experience, and 45 percent are planning to or considering doing the same.
The Salary Budget Planning Report was compiled by WTW’s Reward Data Intelligence practice, and was conducted in April and May 2022. Approximately 22,570 responses were received from companies across 168 countries worldwide. In the US, 1,430 organizations responded.
Payscale Salary Survey
US respondents to Payscale’s survey project an average exempt employee salary increase of 3.8 percent for 2023. Within some industries, base salary increases for 2023 are expected to be even higher, such as 4.7 percent in engineering and science, 4.3 percent in food, beverage, and hospitality, and 4.2 percent in technology and software.
Payscale clients and contacts were invited to participate in its Salary Budget Survey in May/June of 2022 via email. Submissions were accepted through to the end of June, resulting in 2,021 useable submissions.
Salary.com Survey Results
In September, Salary.com released its Annual National Salary Budget Survey. It predicts that the decades-long three percent average raise is replaced by a medium four percent salary raise across most employee categories, matching the prediction of WTM and Payscale. (Canada’s average median increase will be three percent). Salary.com also found that a quarter of employers plan to give increases in the range of 5–7 percent in 2023. Salary.com conducted the survey of 1000+ organizations in June of 2022.
The Salary.com survey also found that when organizations provided Cost of Living Adjustments (COLA) increases, they tended to be more generous in 2022 than in 2021, as average COLA Increases rose above 2 percent for the first time in many years. This is not surprising, given record-high inflation rates in 2022 and much talk of an impending recession. However, smaller organizations (fewer than 500 full-time employees) were more likely to provide COLA increases than larger organizations. Average COLA increases for smaller organizations hovered in the range of 2.5 – 2.7 percent, higher than the typical 2 percent provided by larger organizations.
The Pacific Northwest continues to pay slightly higher salaries than other regions of the country, with median total increases in the 5 percent range vs. the U.S. median of 4 percent.
Salary.com conducted the survey of 1000+ organizations in June of 2022.
Are you ready for job posting pay equity?
California appears ready to join Colorado, Washington, New York, and Rhode Island in requiring companies that post jobs to disclose hourly pay rates and salary ranges. Fortune 1000 companies frequently follow the trends of large states like California and New York rather than have piecemeal policies. Such disclosures will uncover internal pay equity issues and a company’s competitiveness in its industry and geographical regions.
Are you ready for job posting pay transparency? It is worth planning now what your strategies will be, not just in the states mentioned above but nationally. Learn more about the four strategies I strongly suggest you consider
Toxic organizational cultures drive employee turnover 10 times more than pay.
In addition to the WTW’s finding that survey respondents are taking non-monetary measures to attract and retain employees, an MIT report released in February shows that having a thriving organizational culture is significantly more important than pay for retaining employees.
MIT researchers uncovered that toxic organizational cultures drive employee turnover 10 times more than pay. This is startling news during the Great Resignation when employers have significantly improved pay and benefits to reduce employee turnover. Learn more here.
Despite dampening inflation and a slowing US GDP, the United States’ structural labor shortage and employees’ continued ability to find better jobs will keep pressure on salaries. High salary increases will continue into 2023. However, to reduce turnover, organizations need also to consider making their work cultures more collaborative and less toxic. In addition, the increase in the number of states requiring salary ranges on job postings will grow — forcing organizations to rethink their competitive position with pay in their industry and regions and internal pay equity.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and managing partner of InnovationOne. He works with organizations to transform HR and recruiting, implement remote work, and develop extraordinary leaders, teams, and innovation cultures. He is the author of the highly acclaimed book, Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. Subscribe to his weekly blogs at www.VictorHRConsultant.com.
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