The end of the year is traditionally the time to plan for compensation adjustments. This year, with the competitive job market and inflation at 7.7%*, there is a whole new level of angst as employers try to determine how much to adjust wages for 2023.
The Society for Human Resources Management (SHRM) predicts a 2023 compensation budget increase of 4.6%. While notably higher than the recent year average, this is still significantly less than the cost of inflation for the second year in a row. That means employees will continue to feel the pinch until inflation slows down. The danger is if employees take advantage of the tight job market to increase their income by moving to a new organization. Worse, A SHRM survey of what increases HR professionals think employees want in 2023 came in at 8-10%.
Market compensation rates have also been impacted by the opportunity to work remotely. This means that a professional position based out of California, can be performed in Michigan where the cost of living is significantly cheaper. While this may be a cost savings for California based organizations, it increases competition and wage rates for our local talent pool.
What does that mean for us? Make certain that you are competitive by looking at the market compensation rates by position to see where you stand. Every year, some positions command higher increases than others. Using good quality data to assess the market is critical to determining appropriate compensation levels. Also, that 4.6% average compensation budget will go further if you focus on the high value and least competitive positions in your workforce versus using a blanket increase approach.
Not all is doom and gloom. Remember that compensation is an employee satisfier, not a motivator. If you have a great culture, value your employees, and reasonably compensate them, they are likely to stay in a role where they feel that they belong, even if they could earn a few more bucks down the road.
2022 has been another tough year for leaders. Here’s wishing each of you a restful holiday season. We look forward to seeing each of you back and recharged in 2023.
Happy Holidays!
*US CPI all items 12 months ending 10/22
