The worker shortage brought on by the pandemic hasn’t completely gone away
For the third consecutive year, median salary increases have remained at a solid 4%, according to findings from Salary.com’s Annual National Salary Budget Survey. This 4% figure holds true across the entire spectrum of employment, encompassing both hourly workers and executives.
David Turetsky, the Vice President of Compensation Consulting at Salary.com, expressed surprise at the persistence of the 4% raise rate for a third year in a row. He noted that, traditionally, after a robust year, one would expect a slight retraction. However, this is not the case for 2023 and potentially beyond.
The reason behind the sustained high median salary increase is the lingering worker shortage triggered by the pandemic. “I don’t think we’ve left the world of competitiveness in the war for talent,” Turetsky explained. This remains the case despite an increase in unemployment to 3.8% in September, compared to 3.4% in January and April of the same year.
Turetsky emphasized that companies still struggle to find suitable candidates to fill open positions. To strike the right balance between talent retention and competitive pricing in the job market, companies need to boost their compensation budgets.
Lori Wisper, Managing Director at Willis Towers Watson, pointed out that raises, except during severe economic downturns like the Great Recession, tend to change slowly in response to current economic conditions. This implies that the higher rate of salary increases may continue.
To strike the right balance between talent retention and competitive pricing in the job market, companies need to boost their compensation budgets.
It’s important to note that the 4% increase is a median figure, and raise rates may vary across different jobs and locations, depending on the company’s needs and the scarcity of particular skill sets. If a company fails to align its pay rates with the labor market demand in their respective areas, they risk losing employees, according to Wisper.
Providing uniform, high raise rates to all employees, especially for companies with a diverse workforce in multiple locations, can lead to overspending and potential layoffs. This was a contributing factor to tech industry layoffs earlier in the year.
Instead, experts suggest that companies should strategize their compensation plans carefully. They should assess the value of each role within the organization and ensure competitive compensation for positions critical to their success. This is more complex than merely tying pay to performance metrics, as Wisper pointed out.
In cases where a company faces budget constraints but must maintain a 4% raise rate across the board, Turetsky suggests considering offering executives a lump sum in lieu of a traditional salary increase.
As for the future, experts believe that while the 4% figure may eventually decrease, it won’t do so significantly, at least not in the immediate future. This should be taken into account in future compensation planning.
Wisper pointed out several factors contributing to this stability, including persistently low unemployment rates, the enduring worker shortage, and the limited impact of automation on labor availability. Though legal permanent and temporary immigration has seen a rebound after pandemic-related lows, it’s still insufficient to address the workforce shortage.
Turetsky also highlighted potential future uncertainties that may influence median raise rates in 2024, such as Federal Reserve actions on interest rates, changes in inflation, and the looming U.S. presidential election. In light of these factors, HR managers are advised to adopt a cautious and adaptable approach in their compensation strategies beyond the current year.