Companies Plan Biggest Salary Increase In Years

Beset by rising inflation and hiring difficulty, companies are poised to give workers the largest salary increase in 14 years. 

The Conference Board is projecting an average salary increase of 3.9% for 2022, the largest since a similar hike in 2008. “Faster growth in wages for new hires and accelerating inflation are the main causes of the jump in salary increase budgets in recent months,” said Gad Levanon, the Conference Board’s vice president for labor markets, in an announcing the results this month.

The forecast comes from a survey last month of 240 compensation executives at the nation’s largest companies. They were asked what they were budgeting and what they were projecting for salary increases in the coming year. Six months ago, they reported planning for a 3% average rise. But as the labor shortage continued to worsen, businesses were forced to boost new hire pay to attract workers. 

The most recent data from the U.S. Bureau of Labor Statistics shows job openings went from a seasonally adjusted 6.4 million in January to 10.1 million in October. In the two decades the Bureau has tracked job openings, only the 10.7 million openings recorded in July was higher. At the same time, unemployment has plunged from a pandemic high of 14.2% in April 2020 to 4.0% in November.

Salary Increases To Remain at High Levels

Saying “It is likely that severe labor shortages will continue through 2022,” Levanon anticipates that, “Overall wage growth is likely to remain well above four percent. Wages for new hires, and workers in blue-collar and manual services jobs will grow faster than average.”

In addition, with no sign of a slowdown in inflation, Levanon predicts cost-of-living adjustments will increase.

“In this environment, the upward momentum for salary increase budgets is likely to continue into early 2022.”

Mercer, a global human resources consulting firm, estimates a more modest salary increase of 3.5%. Like the Conference Board, Mercer, too, upped its estimate from an August survey when the salary increase came in at 3.3%.

Even that forecast, the result of surveying some 950 employers in October, may turn out to be low, Mercer suggests. “The reality is that these numbers may still change, particularly with the economic uncertainty surrounding Omicron.”

 “Pressures have continued to mount over the past several months with both inflation and quit rates being at 20-year highs. This has resulted in many employers taking a harder look at compensation plans for 2022.”

Bonuses and Merit Pay Increases to Remain

And, in fact, Mercer found that the percentage of employers increasing their merit pay budgets by 3.5% or more doubled since August, going from 13% to 27%. The percentage of employers increasing their bonus payouts by 10% or more is 24% higher than in 2020.

With the labor shortage and rising inflation, Mercer says “employee expectations are still running high… the tough reality is, at the moment, most employees would likely have no trouble finding a new role – and likely command a premium for job switching.”

To limit attrition and be competitive when recruiting workers, Mercer advises employers to:

1. Prioritize their hourly workforce – “Our research has shown that this is the segment of the workforce driving the continued attrition in the workforce — and wages are moving fast.”
2. Address gaps in merit pay – “Organizations should ensure that their merit budgets are sufficient enough to close gaps in competitiveness — and also ensure that the budget is distributed where it’s most needed.”
3. More than pay – “While pay matters, a lot, in many cases it’s when the broader employee experience falls short that employees will start to shop their options.”

One other survey, this one from Empsight International, found the average salary increase to be 3.7% with half of the responding companies budgeding more than 3.5% and half less.

2022 Salary Predictions

Emspight forecast merit pay increases to average 3.25%. Here, half of the 122 responding companies budgeted less than 3% and half budgeting more.

Commenting on 2022 salary increases, Angelo Kostopoulos, CEO of the business data and survey development firm Akron Inc., told The Washington Post, “Companies now see inflation as something they’re going to have to deal with for the next several years. If you combine that with the Great Resignation, plus a heavy focus on technology and related skills, I think that’s where a lot of your overall budget planning increases are coming from.”

Contributions by John Zappe