For the first time in over two decades, the average salary budget increase percentages significantly increased in 2022 and are expected to remain at the twenty-year high in 2023.
WorldatWork is projecting average salary budget increases at 4.1 percent overall for 2023; the same as the 2022 actual increase percentage. This is a nearly one percent increase over the 2022 projections (3.3 percent on average).
With recent projections, going into 2022, remaining at or near an average of 3.0 percent overall, the actual 2022 increase and the projected 2023 increase, at 4.1 percent, are the most significant increases since 2001.
Willis Towers Watson (WTW) conducted a separate survey, projecting the same 4.1 percent salary budget increase for 2023. According to WTW two-thirds of employers surveyed budgeted for higher pay raises last year, with less than half expected to utilize the budgets planned in the beginning of 2022. WTW states that just over one-third of employers have already implemented increases or plan to increase the frequency of salary raises, the majority planning to implement twice-yearly adjustments.
Additionally, Mercer reported in their late 2021 U.S. Compensation Planning Pulse survey that surveyed employers were budgeting approximately 3.5 percent for total increases, and that within the first quarter of 2022 (March) the average budget for total increases had risen to 3.8 percent.
As in previous years, there are no individual states that are projected to have average increases significantly above or below the overall projection, with each state projecting between 4.0 to 4.2 percent. (WorldatWork)
Additionally, WorldatWork projects that the education industry will continue to see the lowest salary budget increases of all major industries; however, the industry is projected to reach levels above three percent.
Industries reporting the highest projected increases for 2023 include agriculture and public administration, each projected to have increases nearing five percent.
HR Executive reports a large turnover in the job market as a driving factor for the significant salary increase that is projected; Mercer also cites retention issues and inflation as contributing to the need for higher increases in 2022 and going into 2023, while adding business performance as another common impacting factor.
As of July 2022, the United States Bureau of Labor Statistics (BLS) reports that the monthly turnover rate across all industries is approximately 3.9 percent with some industries reporting close to a seven percent (per month) turnover rate and other industries reporting as low as 1.4 percent monthly.
Although increases are at a two-decade high, the fact remains – inflation is even higher. By mid-year, inflation reached over double the percentage projected for 2023 salary budget increases.
BLS reports an 8.5 percent increase to the Consumer Price Index, overall, from July 2021 to July 2022 and The Kiplinger Letter projects that end-of-year inflation will likely be around eight percent.
Kiplinger does not expect inflation to drop to four percent, or below, until the end of 2023. With the increasing cost of commodities and living, it is not surprising that organizations are trying to allocate more toward pay raises.
As the economy continues to bear the burden of inflation and the job market endures high turnover rates, it is imperative that organizations consider their overall salary budget increases and how they will impact employee retention and salary budget cost.