2023 Salary Budgets Projected to Stay at 20-Year High but Trail Inflation

Salary increase budgets in the U.S. are projected to grow, on average, just over 4 percent for 2023, less than half of the current annual inflation rate of 8.5 percent, according to new survey data.

FEATURED RESOURCE PAGE

Working Through
an Unstable Economy

WorldatWork's Salary Budget Survey shows that salary increase budgets in the U.S. rose to an average of 4.1 percent in 2022, a 20-year high and much larger than the average 3.3 percent increase that last year's survey of total rewards professionals projected in August 2021. A subsequent WorldatWork Salary Budget Quick Poll conducted in January 2022 reported that more than half of the respondents had increased their 2022 salary increase budget projections in the previous six months as inflation began to spike.

For 2023, this year's survey, which closed in June and received responses from 2,445 WorldatWork members, is forecasting that salary increase budgets will stay at an average of 4.1 percent.

Companies may also have separate budgets for variable pay bonuses.

In the table of survey results below, the mean is the mathematical average, and the median is the middle value after listing expected budget increases in successive order. Outliers, or extreme values on either the high end or low end, have the bigger effect on the mean and less on the median, although for this data there was little difference between the two measures.

______________

2022-2023 U.S. Salary Budget Increases

Salary increase budgets represent the pool of money available annually for base pay adjustments.

Source: Salary Budget Survey 2022-2023: Top-Level Results, WorldatWork, 2022.

______________

Planning for 2023

The Consumer Price Index (CPI) for all items increased 8.5 percent for the 12 months ending in July, a smaller figure than the 9.1-percent increase for the period ending in June but still near a 40-year high. Compensation planners may be relying on estimates that the inflation rate will continue to moderate in 2023. If it doesn't, employers could be pressured to raise their salary budgets projections next year, although if the economy continues to slow, they may not have sufficient revenues to do so.

Organizations of all kinds, from global multinationals to modest enterprises, "plan salary increase budgets to maintain the workforces they need," said Sue Holloway, director of executive compensation strategy at WorldatWork. "The rapid rise in salary increase budgets over the past couple years, combined with today's volatile economic environment, challenges HR pros to leverage data and think strategically as they formulate 2023 compensation budget recommendations and negotiate with CFOs."

When asked how certain they felt about their 2023 salary increase budget projections, nearly half of respondents felt moderately certain and just over one-quarter felt slightly certain. A small number (2 percent) felt extremely certain.

Forecast for Merit Increases

Compensation survey and consulting firm Empsight's 2022 Policies, Practices & Merit Survey report, which includes 2023 forecasts, shows that of 259 U.S. companies reporting a merit increase forecast for 2023:

• Approximately 35 percent are budgeting 3 percent.
• Approximately 40 percent are forecasting 4 percent or higher.

The survey was conducted between April and July 2022.

Merit increases are pay raises given to employees based on their performance and don't include base pay increases based on job promotions or cost-of-living adjustments.

Empsight's survey projects a mean rise in merit increase budgets for all employees (excluding zero increases) of 3.67 percent and a median increase of 3.50 percent.

______________

2023 Merit Increase Budget Forecast
Responses exclude companies not planning merit increases.

Source: 2022 Policies, Practices & Merit Survey, Empsight, 2022.

______________

When including companies that are planning zero increases to their merit pay budgets next year, the mean forecasted budget increase (all employees) falls slightly to 3.59 percent and the median stays at 3.5 percent.

The labor market, inflation, and hiring and retention pressures were cited by respondents as key decision drivers in setting pay budgets for 2023, along with concerns over economic pressures, Empsight reported.

Many respondents planning larger pay budgets next year said they intend to watch and, if warranted, reduce their budget increases if the economy slows down significantly. In addition, some said they are revising salary structures (including pay ranges) upward to achieve pay goals.

Other Salary Projections

According to pay data and software firm Payscale's 2022-2023 Salary Budget Survey, U.S. employers report, on average, a planned base salary increase of 3.8 percent in 2023. Among some industries, however, base salary increases reported by respondents may surpass 4.5 percent or even 5 percent for their employees. The survey was conducted in May and June 2022 with responses from 2,021 employers. The top reason given for higher budget increases in 2023, by 85 percent of respondents, was competition for labor.

Payscale's 2023 projections follow similar increase trends reported by the firm for 2022, when the average overall increase came in at 3.6 percent and surpassed 5 percent in some segments.

Consultancy WTW's July Salary Budget Planning Report found that companies are budgeting an overall average increase of 4.1 percent for 2023, compared with the average actual 4 percent increase in 2022. The survey was conducted in April and May 2022. In the U.S., 1,430 organizations responded.

Compensation data and analytics firm Salary.com's Annual National Salary Budget Survey shows that 48 percent of U.S. employers are planning higher year-over-year salary increase budgets for 2023 (with a median raise of 4 percent across all employee categories), continuing an upswing that began in 2022. A quarter of employers plan to give increases in the range of 5 to 7 percent. Salary.com conducted the survey of more than 1,000 organizations in June of 2022.

The Conference Board 2022–2023 US Salary Increase Budget Survey finds that U.S. employers originally planned for a total salary increase budget of 3.6 percent of total payroll in 2022, but the actual total salary increase budget rose to 4.1 percent. The total salary increase budget for 2023 is projected to rise even further, to 4.3 percent.

The findings are based on The Conference Board's long-running salary increase budget survey, which this year was conducted in July and received responses from executives at 250 U.S. organizations.

Actual Pay Growth Exceeded Salary Budgets

Salary-increase budget data may not take into account unbudgeted and off-cycle base pay increases, which were significant this year due to inflation. Also, because of the tight labor market, new hires are frequently offered higher salaries than current employees in similar positions. These and other factors can cause salary budgets to be less than the actual rise in compensation paid by employers.

For instance, according to payroll and HR software and services firm ADP's latest National Employment Report, released Aug. 31, the year-over-year change in annual pay by U.S. employers was up 7.6 percent in August. The report used ADP's aggregated payroll data of over 25 million U.S. employees.

U.S. government reports have placed the overall rate of rising pay somewhat lower. The Bureau of Labor Statistics (BLS), for instance, reported that wages and salaries for private-sector workers rose 5.7 percent for the 12-month period ending in June, up from a 3.5 percent increase a year earlier, in its quarterly Economic Cost Index summary.

Growth in hourly wages has exceed salary raises this year. For full-time hourly employees, the Federal Reserve Bank of Atlanta tracked 6.7 percent hourly wage growth for the 12 months ending in August.

Adjusting for inflation, however, "real" average hourly earnings fell 3 percent from July 2021 to July 2022, the BLS reported in August.

Related SHRM Articles:

Wage Growth at Small Businesses Stays Strong, SHRM Online, September 2022

US Employers Boost Pay Budgets Despite Recession Concerns, SHRM Online, August 2022

Related SHRM Resources:

Salary Increase Projections 2023 (and 2022), SHRM Express Request

[Need real-time, HR-reported compensation reports? Check out the SHRM Compensation Data Center]