Inside the Biggest Wave of Salary Increases Since 2008

Inside the Biggest Wave of Salary Increases Since 2008

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Have American employers finally put more power behind salary increases? The country’s workforce is now seeing the highest average paycheck rise in 14 years as evidenced by company budget increases dedicated to compensation.

WorkTango compiled a list of facts and statistics about what is causing these increases, combining research from employer surveys, business news articles, and the Bureau of Labor Statistics.

One major factor behind the increase is inflation, currently at its highest level in 40 years. With the Consumer Price Index up 7.9% in February 2022, the increased cost of everyday goods such as gasoline and food means that wages have weaker buying power. Compensation has not kept pace with the rate of inflation nor the cost of goods and services.

Combine rising inflation with the Great Resignation, and employers have been confronted with a widespread need to hire new workers and retain current ones. In-demand skilled workers are in a position to seek top salaries and other benefits, among them remote schedules, flexible work days, and in some cases a four-day workweek.

As for currently employed workers, those who switch jobs are finding even bigger wage increases than if they had stayed where they were—a fact that’s been true since 2011, according to research by the Federal Reserve Bank of Atlanta.

2022 employer compensation budgets had the highest increases since 2008

Employers in the U.S. are expected to increase their budgets for raises by 3.9% in 2022, the highest jump since 2008, according to a November 2021 Salary Increase Budget Survey by business research organization The Conference Board.

All companies maintain what is known as a salary increase budget, which is a pool of money set aside expressly for salary increases for the coming year. But employers hadn’t expected this level of increase judging by their responses to an April 2021 survey. The findings indicated that respondents planned to raise their budgets by only 3%. The primary reasons for the jump are inflation and wage increases for new employees.

99% of employers plan to give salary raises in 2022

A survey by compensation consulting firm Pearl Meyer found that 99% of employers were planning to give raises in 2022.

Rebecca Toman, vice president of the survey business unit at Pearl Meyer, told CNBC the percentage of employers planning raises was unusually high, though increases may not be entirely in line with worker expectations.  Surveyed companies said they’d be carefully watching inflation, and according to Toman it’s possible that employers could even add additional wage increases mid-year.

Employers are incentivizing workers to stay

The rise in wages is a direct reflection of employers responding to the triple hit of resignations, labor shortage, and inflation. Another firm, Grant Thornton, reported that 51% of human resource officials were expecting merit increases of more than 5%. Of those companies surveyed, 68% said they’d increased the number of employees eligible for a cash bonus. In February, the so-called quit rate was 2.9%, with 4.4 million workers resigning from their jobs, according to the Bureau of Labor Statistics.

Switching jobs often leads to higher salary increases

Employees who switch jobs typically see a bigger wage increase than if they stayed put. People who changed jobs saw an average wage gain of 4.3% in November 2021, according to the Atlanta Federal Reserve Bank. That compares to 3.2% for those who remained in their current roles.

Wage gains for people who changed jobs are up from 2011, according to the Atlanta Federal Reserve’s wage growth tracker, which uses data from the Bureau of Labor Statistics and the U.S. Census Bureau’s Current Population Survey.

Hiring new employees adds to growing wage budgets

Nearly half of the companies surveyed by the Conference Board said new hires contributed to larger wage budgets for 2022. 

As wage premiums based on experience have narrowed, experienced workers have been jumping ship for higher pay, forcing companies to also raise wages more quickly for less experienced workers in order to maintain their workforce. These high turnover rates, coupled with labor shortages, are giving workers more power to demand higher pay as employers strive to attract personnel.

The unemployment rate was at 3.6% in March 2022, just slightly higher than right before the coronavirus pandemic shut down the economy in 2020.

Inflation is a big reason for larger salary increases

Inflation was the second most commonly cited reason behind wage increases, according to the Conference Board’s survey. The Consumer Price Index rose 0.8% in February 2022 to reach 7.9%, according to the BLS.

The primary drivers of inflation have been rising gasoline, food, and housing costs. The gasoline index alone rose 6.6% in February, accounting for nearly one-third of the overall increase during that month. There’s little sign that inflation is dropping and organizations are feeling the pressure to raise wages or lose their competitive position as an employer of choice.

Inflation and cost of living can turn pay raises into pay cuts

Employees who receive a pay raise will be measuring their compensation increase against the 7.9% rise in inflation over the last year. Factor in goods and services costs continuing to climb, according to Treasury Secretary Janet Yellen, and the horizon points to inflation remaining at high levels late into 2022 and beyond.

Despite record high raises, many are earning less and facing reduced buying power when, real wage growth is taken into account. 

Companies are improving benefits packages and flexible work options

Companies are beefing up their benefits packages to combat tight competition for talent. Based on a survey of more than 5,500 respondents, in 2021 nearly 66% of employers awarded individual bonuses and 59% offered bonuses based on company-wide performance metrics.

Remote work has increased 25% since 2021; and remote work stipends have jumped 8.3% over the same time. Moreover, flex time and mental health and wellness programs have seen increases, as has the four-day workweek.

With the future of work radically transforming before our very eyes, it’s time to revamp the employee experience to better engage your company’s biggest asset—your people.