U.S. companies — reacting to persistent inflationary and labor market pressures — are ratcheting up the targeted average pay raise they expect to hand out next year to 4.6%, according to a study conducted Oct. 3 through Nov. 4 by the global advisory firm Willis Towers Watson. The last time salary budgets were as high as they are now was in 2001 and 2002, according to Lori Wisper, managing director with WTW.
The anticipated raises are even higher than those projected by respondents in an earlier July study when companies anticipated an average 2023 pay raise increase of 4.1%, the highest since 2008. Already this year employers are also on track to spend more than they previously budgeted on compensation, with actual salary spend increases so far this year up 4.2%.
- Changes in salary budgets over time often lag economic trends by six to 12 months, according to WTW. “In July, it was too soon to know the duration of the ongoing labor market shortages and inflation. I think organizations were more conservative in their forecasts based on the information they had. They then had to adapt their salary budgets because of inflationary pressures, concerns over tighter labor markets and retention,” Hatti Johansson, research director of Reward Data Intelligence, WTW, wrote in an emailed response to questions.
The findings announced Thursday come as financial executives are continuing to wrestle with an economy that is sending mixed signals even as an increasing number of economists forecast a recession.
The WTW study also identified some cross-currents, as three out of four of the survey’s respondents (75%) indicated that they are having problems attracting and retaining talent at the same time that 12% said they are planning company restructurings and layoffs, according to WTW’s latest Salary Budget Planning Report.
Broader economic data suggests that companies are still grappling with a red-hot labor market and wage pressures. Layoffs in September declined and job openings increased 437,000 to 10.7 million, far exceeding the 5.8 million people seeking employment, the Labor Department said.
But some pockets of the economy, for example the tech sector, have evidenced a striking downshift in employers’ attitudes toward hiring as the Federal Reserve presses on with an aggressive withdrawal of stimulus. A recent OneSource Virtual survey found that most CFOs are gearing up to freeze hiring.
The survey culled 28,000 responses that came from more than 135 countries as well as 1,550 companies in the U.S.
Johansson in a statement warned companies that they should pay close attention to market data before making changes in their businesses.
“As inflation continues to rise and the threat of an economic downturn looms, companies are using a range of measures to support their staff during this time,” Johansson stated. “Organizations should prioritize their actions based on the needs of both employers and employees and pay close attention to market data to inform any changes.”