Payscale this week came out with its highly anticipated 2023 Compensation Best Practices Report, which turns out to be a mixed bag for employees: smaller raises, maybe semi-annual salary bumps and a dollop of extras to make up for companies’ Scrooge-like behavior.
The bad news for many of us: fewer employers plan to bump up salaries this year.
Only in 8 in 10 organizations said they would offer base pay increases in 2023, down significantly from more than nine in 10 last year, according to Payscale’s new report, conducted between October 2022 and December 2022, of nearly 5,000 employers headquartered in the U.S. (69%), Canada (8%), and Europe, the Middle East and Africa (17%).
A sizable 15% were unsure of whether or not they would pony up for bigger salaries, up from 3% last year.
Fewer employers ‘committed’ to give base pay raises
That’s a bit surprising after all the handwringing last year about labor shortages and the stress of retaining workers who were more than happy to hit the exits for higher pay and more opportunity at another employer.
“But fewer organizations are committed to give base pay increases,” Amy Stewart, Payscale’s associate director of content and editorial, told Yahoo Finance.
To be sure, six in ten organizations experienced labor shortages and trouble attracting and retaining talent in 2022, according to the report. But that may not be as big of an issue this year. Some evidence: while new postings rose on the job board Indeed last week, they are declining on a month-over-month basis; total postings growth trended slower, said Nick Bunker, an economist at Indeed.
For those of you who work for a firm that does plan to provide annual salary bumps, don’t expect cork popping raises to help offset the current inflation rate of 6.4%. Although more than half (56%) of employers surveyed said raises would be above 3%, the average overall average raise will be lower in 2023 than it was in 2022.
For employers that do sweeten salaries, around one in four plan an increase of between 4% and 5% with 12% reporting tiny bumps of between 3% and 3.99%—and 8% between 3.01 to 3.49%. Last year, 18% of those surveyed reported average pay increases of more than 5%, compared to 11% for 2023.
What happened to the anticipated largest raises since 2007?
Those numbers throw water on the upbeat figures tossed about last fall when employers were in throes of desperation to hold on to workers and attract new ones to the fold. In November, employers were planning to bump up salaries by an average of 4.6% this year — the most since 2007, according to a Willis Tower Watson (WTW) survey of 1,550 U.S. companies.
But even that optimistic forecast was probably not going to be enough to keep workers content. A separate study from SHRM Research Institute found that most of the 1,500 HR professionals surveyed said it would take 8% to 10% pay raises to retain workers.
The muddled expectations spotlight the relentless dueling between employers and employees that started when the labor market emerged from the pandemic in 2021.
Fewer workers are expected to jump ship this year than last, according to the Payscale report; the turnover rate is still expected to be around 25%, down from 36%. (More than a third of organizations cite compensation as most to blame for workers choosing to quit.) And that looks to be the picture into 2023, Stewart said. But hopefully for employers, the rate will continue to decline.
Workers still have bargaining chips
It’s perplexing that employers aren’t taking the time to read the tea leaves when it comes to hiring workers who can get the job done. “Although we may enter a recession in 2023, attracting and retaining talent looks like it will remain a top challenge for organizations,” Stewart said. “Compensation and pay progression are key factors in the employee experience and will take center stage in 2023.”
The good news: Often, organizations discover that annual pay increases are too infrequent to retain talent, especially if they miscalculated what employees expect around performance reviews, she said. As a result, the number of organizations that give formal pay increases twice annually has increased from from 4% in 2022 to 11% this year, according to Payscale data.
Moreover, roughly one in four of employers surveyed plan to offer bonuses to ease the impact of rising costs.
Other benefits to winnow the gap between rising costs and compensation are also on the rise. The Payscale research found small increases in mental health or wellness programs, paid sabbaticals, and extended family leave. Employers also reported an upswing in help with student loan repayments, financial/debt services, travel benefits, and the four-day workweek.
What did you make in your last job?
And for those jobseekers out there, beware. Less than half ( 42%) of organizations refrain from asking applicants to disclose their current salary, or most recent one, according to the data.
That’s deeply troubling. In particular, it puts women and racial minorities who already grapple with a pay gap in an uncomfortable negotiating position.
Over half of U.S. states and many countries have passed salary history bans forbidding employers from asking this question, according to Payscale research. That said, a number of employers (11%) persist in the practice of asking prospective employees about their salary history, even where it may be illegal.
That takes chutzpah.
The Yahoo Finance Take: Money matters. Keeping pay apace with cost of living is crucial and, the truth is skilled workers will still be in hot demand this year.
