BOSTON—Nov. 15, 2022—Newly released data from executive compensation consultancy Pearl Meyer indicate economic uncertainty and talent concerns are driving organizations to offer atypical compensation increases. In a survey conducted between August and September 2022, more than 300 board directors, c-suite leaders, and senior HR practitioners provided current and projected compensation data. Base salary pay increases at four percent are expected to exceed the historical norm of three percent for the second year in a row.
“We asked business leaders to rank multiple macroeconomic factors that are impacting their organizations today and found that general economic uncertainty, inflation, and a tight labor market are weighing most heavily on management teams and boards of directors,” said Bill Reilly, managing director at Pearl Meyer and lead sponsor of the survey. “While slightly more than half of our respondents are expecting year-over-year improvements in financial performance, they are clearly uneasy about what 2023 has in store, economically and talent-wise, and are taking multiple, atypical actions to enhance attraction and retention during this very unusual labor market.”
Respondents indicated more than a third of their organizations implemented higher than normal merit increases this year and almost 20 percent implemented off-cycle salary adjustments. Sixteen percent of organizations have provided an executive retention award and another six percent plan to do so before the year is over. The survey also found that approximately 20 percent of respondents recently increased short-term and/or long-term incentive (LTI) award opportunities for executives, along with a rise in the number of employees eligible to participate in long-term programs.
The trend is not slowing down. Looking ahead to 2023, 40 percent expect to provide higher salary increases than for 2022. Additionally, 15 to 20 percent of respondents recently increased or plan to increase competitive positioning versus the market for one or more executive pay components, and among the respondents who grant LTI awards to executives, 67 percent expect to provide similar grant-date values for 2023 as compared to 2022, and 20 percent are forecasting higher values.
“Our long-standing recommendation to clients is to let the data inform, but not dictate, your compensation programs,” said Reilly. “The labor market is showing surprising job growth numbers one month and massive layoffs the following month, so the data offers a helpful point-in-time reference that can guide your direction but cannot accurately account for your unique circumstances. Ultimately, making compensation decisions based on your business goals and talent management strategy is the right approach.”
- 40% of companies expect to provide higher base salary increase percentages than in 2022; median projections equal to 4% across all employee categories
- More than one-third of respondents provided higher than normal merit increases in 2022
- Almost 20% provided off-cycle base salary adjustments this year
- Approximately 16% of all respondents provided executive retention awards this year, with another 6% planning to provide them before the year is over
- 15% to 20% have increased or plan to increase competitive positioning for one or more pay components (e.g., base salary, cash bonus, equity-based incentives, etc.)
- 34% of respondents expect short-term incentive award payouts for 2022 to be above target
- Nearly 15% of respondents increased long-term incentive participation levels in 2022, with approximately 10% anticipating increases in participation in 2023
- Executive summary: “Looking Ahead to Executive Pay Practices in 2023”
- Blog post on goal-setting in uncertain times: “Small Steps to Mitigate Risk and Create Resilience in Executive Compensation Goals”
- Webcast replay and presentation: “How Talent Concerns Are Changing the Use of Equity”