Facing ongoing business and economic conditions in 2022, organizations around the world have been forced to stay current with what’s happening in the employee marketplace and how that affects pay – and then adapt accordingly.
This year, that adaptation has been in response to rising global inflation and labor market pressures, both of which had a significant impact on how organizations finalized their 2022 pay budgets. Case in point: WTW’s July 2022 Salary Budget Planning Survey results show that 96% of companies globally increased salaries (compared to 63% in 2020), and overall budgets have increased significantly over prior years.
96% of companies globally increased salaries
The average actual salary increase hit 4.9% in 2022, as compared to a 4.0% actual increase amount in 2021, among those organizations that granted increases in the top 15 economies around the world. But increased salary budgets only make it more critical for organizations to have a clear strategy for awarding pay increases as effectively as possible, prioritizing critical employees and hot jobs, and differentiating for performance.
2022 salary increase budgets higher than ever
Actual salary increases reported in July 2022 were notably higher than both actual 2021 increases as well as initial 2022 projections. In fact, most markets pushed their original forecasts to budgets that are higher than have been seen in nearly 20 years.
57% of organizations reported that their budget for the 2022 cycle is higher than their 2021 compensation planning cycle. As noted, all 15 of the largest global economies experienced higher salary budget increases in 2022 than both 2021 actual and 2022 projected numbers. For example, India’s salary budgets continued climbing from 8.2% in 2020 to 8.7% in 2021 and finally 9.9% in 2022. Also, the United Kingdom, Spain and Mexico saw increase budgets of 1.0 to 1.2 percentage points higher in 2022 compared to 2021.
In April and May 2022, when the July Salary Budget Planning Survey was fielded, 34% of respondents across the largest economies said that their salary budget increases were higher than they had projected just a few months prior. In late 2021, projections stood at 4.3% in the 15 largest economies, compared to 2022 average actual salary budgets of 4.9% among those granting increases in the July 2022 report.
Among those organizations that reported higher 2022 actual salary budgets vs. 2022 projections, the most cited reasons were:
- Concerns over a tight labor market (57%)
- Concerns related to cost management, such as inflation or rising cost of supplies (57%)
- Employee expectations/concerns (47%)
What to expect
Ongoing and diligent monitoring of labor markets and economics combined with continual adaptation is the modus operandi for employers in 2022. The 25% of organizations that update their salaries between June and December will be able to leverage the markets to determine their actions. It will be harder to predict what the future holds for the remaining 75% of organizations that will update salaries between January and April.
For now, continued higher budgets are projected in most of the world’s largest economies. The 15 largest economies are forecasting an average increase of 4.9% in 2023, which is 0.9 percentage points higher than the 4% actual increase in 2021 and aligned with the 4.9% average increase granted in 2022.
4.9% Average increase of salary budgets in 2023 forecasted by the 15 largest economies
Organizations with operations in Russia are forecasting salary increase budgets of 7.3% in 2023, which is half a percentage point higher in 2023 compared to the 2022 average actual increase of 6.8%. Note: This data is from multinational organizations with operations in Russia; data from local Russian organizations was not collected for the July report.
This projection is followed by 2023 projections in the United Kingdom (4.0%), Germany (3.8%), and Spain (3.6%). Each of these are in line or higher for 2023 as compared to 2022 actual increases. The United States is projecting an average increase of 4.1% in 2023, which is aligned with the 2022 average actual increase of 4.0% – the highest since 2008 – and higher than 3.1% in 2021 and 3% in 2020. It will be interesting to observe whether these nations are, in fact, able to maintain these levels.
Indicators show that employers are continuing to return to a more-normal salary review process this year as compared with the freezes of 2020. Today, organizations are deciding how to focus their compensation spend for the greatest impact. This includes both monetary and nonmonetary actions to attract and retain employees – particularly for critical or high-performing talent. Prioritizing and segmenting increases is vital for an appropriate return on investment.
HR’s 2022 mantra: Stick to your strategy
What are you trying to achieve with salary increases? This sounds like a simple question, but a clear answer isn’t always easy.
After establishing increase budgets (based, of course, on market data intelligence), it is critical to align your priorities. Determine strategic goals that align with both your compensation philosophy and your organization’s business strategy. Then, start narrowing how to achieve those goals by setting priorities. Also, remember that every organization will have its own set of goals and priorities.
For example, you may want to retain critical roles and resolve inequity issues. If so, then your priorities would be to adjust any major diversity, equity and inclusion issues using salary budgets – even some fair pay analytics – and consider in-demand and business-critical talent.
However, remember: Even with an increased budget, it is important to segment your workforce as you develop your goals. That could be by employee level (e.g., hourly, professional, executive), performance level, or even by areas in which you’re having trouble attracting and retaining talent (e.g., digital talent, engineers).
Also, take a Total Rewards perspective. Base salary adjustments are one piece of the employee value proposition. Consider other important components of your employer-employee deal, including bonuses, long-term incentives, health and wellness benefits, career progression, and learning and development opportunities.
Finally, remember other payments you may have made during the year – retention bonuses or recognition awards. Taking a big-picture view ensures your salary increase process is transparent and emphasizes the connection between salary increases and business performance. It’s easy to forget that salary increase budgets are driven by several factors and, as such, should be viewed as one piece of a much larger pie.
Be prepared for the salary – and salary budget – challenge
Labor markets and inflation have made 2022 another year of unexpected changes. Even with these ongoing pressures, pay increases and the salary budgets that fund them must be allocated in line with market conditions and directed by clear business priorities. The best place to start? Reliable market data that supports these critical decisions.
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