Good morning,
The Great Resignation is now the Great Regret, and “quiet quitting” has turned into “act your wage” all while companies make employee compensation decisions in an uncertain macroenvironment.
This year, fewer companies plan to give base pay increases, according to Payscale Inc.'s 2023 Compensation Best Practices report released on Wednesday. Eighty percent of companies surveyed said they plan to do so, compared to 92% in 2022. But 15% are unsure whether they will offer raises.
Of those companies that will give a bump to base pay, 56% said it will be over 3%, which is up from 53% of companies who said the same last year. The average increase for 2023 will fall between 4% and 5%. Just 11% of companies (compared to 18% of companies last year) said they'll increase base pay by more than 5%, according to the report. However, the majority (86%) of companies will give raises out of cycle, due to inflation, the rising cost of living, and preparation for pay transparency.
Another key finding: On average, voluntary turnover has dropped more than 10% (from 36% to 25%). Are employers feeling they have a bit more leverage? Not quite.
“The labor market remains tight, and most organizations are still having trouble retaining talent,” says Amy Stewart, associate director of content and editorial at Payscale. “That being said, some organizations may be more hesitant to hand out raises this year (especially if they already gave hefty increases last year) due to economic uncertainty. Organizations that expect to be impacted by a recession are more likely to be cautious with pay increases, and budgets for pay increases may continue to change as the economy shifts."
Payscale’s global survey gathered 4,933 responses from employers, including compensation professionals, (69% of the companies are based in the U.S.) across industries from October through December 2022. A total of 66% of companies represented have between 100 and 49,999 employees.
Addressing inflation
The report also puts a spotlight on wage inflation, an issue of importance for employees. Fifty-eight percent of companies said they are addressing the impact of wage inflation by increasing base pay to retain workers, with 40% focusing on the whole workforce, and 18% focusing on lower-wage workers only.
Salaries tend to be determined according to the cost of labor. However, "Cost of living is frequently considered when it comes to annual pay increases," Stewart says. "Organizations want to retain workers by maintaining the value of their pay as well as reward them on merit."
The survey found that 41% of companies think they are losing talent due to insufficient pay increases. “This was slightly higher for the finance and insurance industry (43%),” Stewart says. An additional finding is 63% of finance and insurance companies said they have a compensation strategy compared to 55% overall, she says.
Top performers track HR metrics
The report identifies top-performing companies as those that reported exceeding their 2022 revenue goals. The HR metrics top-performing organizations track more than the other companies include high-performer turnover rate, productivity, cost-per-hire, the ratio of HR staff to employees, and the cost of HR per employee.
"Tracking HR metrics increases with the size of the company and the resources they have at their disposal," Stewart explains. "While there could be many factors as to why the top companies have tracked these specific metrics, it is plausible that the Great Resignation was a driver for organizations that were not tracking metrics previously."
Some investor groups are pushing companies to report more on HR data in financial accounting to better estimate a company’s value, Peter Cappelli, the George W. Taylor professor of management at the Wharton School, recently told me. “If employees had asset value, one would think twice about just cutting them,” Cappelli said.
Another finding of Payscale's research is 63% of organizations said pay equity analysis is planned or is a current initiative in 2023. And this is significantly higher than even a few years ago, according to the report.
There are a lot of factors involved in making compensation decisions, but transparency and being aware of the needs of employees seem to go a long way.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
