When your peers were asked in August what they were planning to do with their 2023 annual salary increase budgets, not many said they were planning to freeze salaries.
Salary increase budgets are likely to be larger than this year’s percentages, according to almost 1,200 organizations surveyed by Mercer. But because some employers are bracing for a recession, merit increases will be kept conservative to avoid having to make layoffs later in the year.
When preliminary 2023 merit increases reported by survey participants were averaged up, it came out to a 3.8% increase. Compare that to the 3.4% increase delivered by surveyed employers in 2022.
There’s also an uptick trend for average total salary increase budgets: 4.2% for 2023, compared to a 3.8% actual increase in 2022.
Additional surveys also point to a majority of businesses planning to up their 2023 salary budgets.
More off-cycle salary increases
In Mercer’s March 2022 U.S. Compensation Planning Survey pulse, 38% indicated that they were providing off-cycle salary increases. But in the most recent pulse survey, it jumped to 64%.
Respondents said their off-cycle increases had more to do with employee retention (85%), market adjustments (82%), internal pay equity (68%) and countering compensation offers from employee-poaching competitors (65%) than it did inflation (18%).
Off-cycle adjustments, along with hiring rate increases, have a significant impact on average salary amount changes. When Mercer compared the salary data from its respondents in the first six months of this year vs. the first six months of 2021, the change in average total salary per employee amounted to a 4.1% increase across the board.
Determining salary increase size
Not surprisingly, individual performance was cited by 94% of employers as the most common factor used to determine the size of an individual’s annual increase. But take a look at the other factors your peers said make a difference in level of salary increase:
- Internal pay equity (74%)
- Comparison of current salary to market value (73%)
- Individual skill level (38%)
- Individual potential (29%), and
- Comparison to total compensation delivered (21%).
Just 3% make equally distributed, across-the-board salary increases.
Before locking in the budget
Budget season is here. And with most employers planning pay increases for employees, you may want to break down your salary budget with HR to determine if it’s going to keep pace with what the competition’s paying people in the same positions at your company.
It may depend on whether your 2023 goals include strategic moves to retain employees, correct any existing salary discrepancies at your company or implement pay transparency communication.
