For the third year in a row, median raises are sticking high at 4%.
That’s what Salary.com found in its Annual National Salary Budget Survey. That 4% number is also blanket across the employment spectrum, from hourly employees through executives.
David Turetsky, vice president of compensation consulting at Salary.com was surprised raises have stayed at 4%, especially for a third consecutive year. “Typically after you get a big year, it will retract a little,” he said. Not so for 2023 — or possibly beyond.
Why 4% is sticking
Median salary ranges have stayed high because the worker shortage brought on by the pandemic hasn’t completely gone away. “I don’t think we’ve left the world of competitiveness in the war for talent,” he said. That’s true even as unemployment rose to 3.8% in September, where it was down to 3.4% in January and April this year.
“It’s still a little bit hard to find people to fill open positions, so in order to maintain that right balance of talent retention, as well as making sure you’re not pricing yourself out of the market in different ways, companies need to increase their compensation budgets,” he said.
Lori Wisper, managing director at Willis Towers Watson, said that raises, with the exception of a severe downturn like the Great Recession, are also slower to change in tune with current economic conditions. “They’re not as elastic so they don’t go up and down as much,” she said, which means higher raise rates may stick around.
What to know for compensation planning
Of course, 4% is a median number, and not all raise rates will be the same for all jobs in all locations. It depends on the company, and what kinds of workers are hardest to find.
“If the supply and demand of labor in the markets in which they compete for talent says you need to raise pay by 4% and they’re only raising it by 2%, they’re likely to lose people,” Wisper said.
However, giving blanket high raise rates to everyone, especially for companies with a lot of people in different locations, is a recipe for overspending, and future layoffs, Wisper added, which she said was a factor in batches of tech layoffs earlier this year.
Instead, companies should plan compensation wisely; examine who is being paid what, and what they’ll need to be paid to stay and attract more workers like them, experts said. It’s also not as easy as saying it shouldn’t be a problem because a company pays based on performance. “Look at the jobs that are critical to you and ensure that you’re taking care of people in those jobs,” Wisper said.
Another tactic if money is short for raises across the board — and 4% raises are imperative to keeping a business open — is for executives to be offered a lump sum instead of a salary increase, said Turetsky.
The 4% future
The 4% number may go down in the future, but not by much — at least not immediately, which should be factored into future compensation planning, experts said.
Wisper said a few elements are at play, including that unemployment is still very low. Even though the great resignation has largely ended, there’s still a worker shortage, and automation hasn’t yet been able to make a dent. And while legal permanent and temporary immigration have started to rebound after pandemic-era lows, it’s still not enough to have a major impact, she added.
Turetsky said that instability will be a factor in median raise rates in 2024, including any Federal Reserve moves on interest rates, any changes in inflation and a looming U.S. presidential election. “HR managers need to get beyond this year end, and it’s kind of listen, wait and see,” he said.