BYSHERYL ESTRADA

September 8, 2022 at 3:24 AM PDT

Annual pay raise budgets in the U.S. are getting a bump in 2023 from the longtime status quo.

“The increases have gone up from what had been 3% for many years,” David Turetsky, VP of consulting at Salary.com, told me. “It’s now budgeted for 4% and potentially higher for next year.”

New data released by Salary.com, a software company that provides compensation data and analytics, found that the median pay increase of 4% is continuing an upward trend that began in 2022.

For salary budget planning, the factors usually considered in raises include a general increase (which considers inflation), equity/market adjustment, and merit increases, according to the data.

Unemployment is low right now, Turetsky says. “There are skilled and unskilled roles that are going unfilled,” he says. “And that’s putting a lot of pressure on the starting rates for those jobs.”

He continues, “We usually see job switchers get large pay increases when they go to other places. Now we’re seeing people who are what we call ‘stayers,’ people who stay in roles, are saying, ‘Well, what about me?’ And so these 4% increases are for the job-stayers.”

For the past 10 years, since recovery from the financial crisis of 2008, the average wage increase percentage has been about 3%, Lori Wisper, a managing director at the advisory firm Willis Towers Watson, recently told me. Coming up with a salary budget “is not arbitrary for most companies, especially big companies, where even a 10th of a percent represents millions, maybe even hundreds of millions of dollars in payroll,” Wisper said. 

Salary.com’s survey of more than 1,000 companies in a range of industries conducted in June found that the median 4% increase planned for 2023 is across all employee categories—executives, managers, and exempt and nonexempt employees. However, that data showed that the actual median increase in 2022 for executives was 3.5% compared to 4% for all other categories.

“I think it’s saying that executives basically said, ‘Look, we’re going to take a little bit less so we can give the other groups more,’” Turetsky says. “Actually, executive salary isn’t typically the highest driver of pay. Usually incentives or stock or something else is a larger component of pay.” Stock and stock-option awards certainly boosted executive compensation in 2021. For example, the median pay packet for leaders of S&P 500 companies rose roughly 12% to $14.7 million that year. 

Salary.com also found that when it comes to salary percentage increases, the health care industry was an outlier. Health care median total increases in 2022 were just in the 3% range. Salary increases in the health care industry are impacted by reimbursement limits imposed by private and federal health insurers, according to the report.

Although there’s historic inflation this year, smaller organizations (under 500 full-time employees) were more likely to provide cost of living increases than larger organizations, according to the report. Average cost of living increases for smaller organizations were in the range of 2.5–2.7% higher than the typical 2% provided by larger organizations.

When it comes to overall salary percentage increases, “a lot of companies are planning to do more next year,” Turetsky says. A quarter of employers surveyed plan to give increases in the range of 5–7%. And 48% said they planned on salary budget increases that are higher or significantly higher than in 2022.

“Salary budgeting time [for next year] is actually right now,” he says. “HR is working with their CFO partners to basically say, ‘How much can we afford to pay?'”

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Source: Fortune

https://fortune.com/2022/09/08/goodbye-standard-3-percent-raise-employers-increase-next-year/