The Great Resignation is occurring amid rising inflation, and as employers face the tightest labor market in recent history, how much to raise employee pay in 2022 is a challenge. Employers have had to increase incentives, pay, and opportunities to attract and retain workers, and next year’s round of pay increases will at least be going up.
Many companies are monitoring inflation on an ongoing basis, and are making decisions to increase pay more than they previously forecast. Compensation consulting firm Pearl Meyer conducts an annual survey on pay budget expectations. Over the summer, the data showed “low 3%” pay raise projections for 2022, but when the firm started hearing a lot of anecdotal talk about much larger increases and more concern about retaining and attracting new employees, it decided to re-survey companies at the end of November. Half of the companies say they are revisiting their pay budgets for 2022 and are expecting to give higher increases than they originally forecast.
In all, the pay budget forecast increased to 4.2%, “which is higher than the low 3% we’ve seen for 20 years,” said Rebecca Toman, vice president of the survey business unit at Pearl Meyer. Among half of the firms saying they are increasing pay budgets, the average is now up to 5.2%, and 25% said they are planning to give pay increases greater than 6%. “Firms are taking a second look and that’s significant movement,” Toman said.
The biggest distinguishing factor in the Pearl Meyer data and among firms that are more aggressively planning to raise wages does come down to privately owned firms versus public companies and non-profits, Toman said. Privately held firms are planning the largest raises, and they don’t face the same scrutiny of shareholders as publicly traded companies. But public companies also may be addressing pay in other ways, including long-term equity and other incentives.
But with inflation projected to remain extremely high in the first few months of 2022, it is important to note that annual raises typically occur between January and April, and there may still be more movement among employers to adjust pay to the on-the-ground economic reality. Companies responding to the Pearl Meyer survey told the compensation consultant that they will keep watching the inflation number closely. “We know it’s a major driver of these larger than typical increases,” Toman said. “And we may even see some companies add mid-year increases in 2022 if they find that they are not keeping up, and missed the mark,” she said.
Even if the data suggests pay bumps won’t match inflation, Toman said there’s one finding from the compensation world that should make workers happy. Nearly all (99%) of respondents to its survey are planning to give salary increases in 2022. “We don’t usually see that,” Toman said. “And that says a lot too. If you don’t have a salary increase program this year, you’re really behind the mark in 2022.”