Every business, industry and market has had a unique experience during the pandemic. On the whole, salary budgets for many organizations have recovered well and more quickly than anticipated, however the pace of recovery has been far from even.
Across 2020 to 2021, the “new normal” heavily favored industries such as life sciences, technology and financial services, which were able to pivot to remote working and avoid business disruptions. Moreover, the most successful organizations were able to control their spending and shore up cash to thrive despite decreased business activity.
This advantage is reflected in year-over-year salary increases from 2019 to 2021. Figure 1 highlights the widening gap in competitiveness of salary increases from pre-pandemic increases (2019) and post-pandemic increases (2021), using general industry as a baseline. For example, we see that leisure and hospitality was trending, with salary increases in line with general industry. But, since the pandemic, the competitiveness of salary increases has dropped dramatically.
2019 vs 2021 salary increase differentials across industries
Additionally, Figure 2 reflects by region how much more high tech and pharmaceutical and health services are able to increase salaries as compared to hospitality and retail companies.
Projected 2022 salary increases in high-performing industries vs. industries that were harder hit by the pandemic
In addition to better cashflow and financial results in 2021, many organizations have increased salary budgets from their original projections due to concerns over talent attraction and retention. Our research suggests that every sector will continue to struggle with these issues through 2022.
Many employers are struggling with the “great resignation” as employees have realized that there is a dearth of new options to explore. Our recent salary budget survey reported increasing talent demand particularly in digital and sales roles, which hints at the future growth plans and digital transformation journey of many organizations. Jaap Scholten, WTW’s Data Services Global Industry Leader, noted that the increasing trend in compensation is “primarily driven by specific jobs as opposed to specific industries.”
The tight labor market is expected to play a key part in industries pushing salaries higher, but there are other emerging trends that may influence pay decisions in 2022.
Hybrid work setups
Skeptics generally were proved incorrect about remote working, as most employees remained productive throughout the pandemic. This especially benefited organizations that prioritized and quickly implemented a remote-first workforce plan, mainly to protect the health, safety and wellbeing of employees. However, our recent surveys found that many employers are beginning to see a downward trend among remote employees’ productivity, engagement and wellbeing, which is negatively affecting employee experience, organizational culture and financial performance.
For many organizations, a physical workplace will remain to be a critical element of culture and the seat of employee experience. While most employers will maintain remote working arrangements into 2022, many will continue exploring their new workplace reality, including discussions around geographical differentials, tax regulations and other location-based factors in compensation.
The ‘homebody’ economy
Apart from remote workers, the new normal created a new consumer profile – the homebody – who has spent large proportions of their disposable income through e-commerce. This has led to a surge of innovation and diversity in online-based products and services, thereby opening more options of convenience for consumers and continuously influencing changes in their spending patterns.
The homebody economy is forecast to boom for the next few years, presenting every industry an opportunity to further innovate. For example, although forecasted spending on travel and holidays is still well diminished compared to pre-COVID trends, there is new revenue emerging from alternatives such as domestic staycations, virtual gifting and blank-ticket bookings for future travel. Notably, this may lead to another shift in the talent market and on pay trends for certain skills.
The success of the vaccination rollout and an optimistic outlook toward economic recovery has led to high levels of consumer confidence. Consumers’ willingness to spend on discretionary categories has even caused spending to be greater than pre-COVID levels. Our recent salary budget survey has found this to be especially favorable in markets in which more than 50% of the population is fully vaccinated (Figure 3).
Projected impact of vaccination rate on real salary increases in 2022
Keep your rewards competitive with data-based best practices
Even before the pandemic, 9 in 10 organizations were struggling to attract and retain digital talent. Six in 10 organizations said they required specialized skills that were too hard to find. Additionally, it is becoming harder to track and identify which skills are “hot” or not. WTW found that two of the most influential factors in whether an organization deems a job as “hot” is the criticality of the role for the organization and the scarcity of talent in the talent marketplace.
In addition to tracking hot jobs, organizations also are struggling with the governance aspects around these specialized roles. Organizations need to ensure they are able to track the premiums caused by supply and demand, identify the skills demanding higher rewards, and implement the necessary controls and technology to competitively reward for digital talent.
Focus on employee experience
Along with the ‘great resignation’, many job seekers have upped their price tag. Interestingly, these demands have not just been about pay, but also benefits and career opportunities for long-term growth and stability. While many organizations will continue relying on the power of cash, our surveys have found that a better strategy lies with considering the overall employee experience (EX).
Organizations with a transformative approach to EX are more likely to report a 28% increase in employee wellbeing and 35% increase in employee engagement. Additionally, they may experience 2.7 times more productivity and 90% lower turnover than industry peers. To identify the EX that your workforce needs, engage effective listening strategies and be honest in your communication with employees – even if you don’t have all the answers.
Invest in employee development and collaboration
Employers are increasingly focusing on redesigning work and upskilling opportunities. To ensure that these programs will truly hit their mark, employers must be intentional around efforts to help employees understand how to progress with their career vertically and horizontally.
Invest in programs and technology to help employees find opportunities to explore within the organization, including mentoring, training and cross-function initiatives. This will be especially relevant to new joiners or less experienced talent.
Strengthen business acumen and act with agility
In a landscape that is changing faster than ever, it is a must and an advantage for compensation professionals to stay constantly abreast of macroeconomic trends, industry-specific shifts and talent market movements. They will also benefit greatly from keeping a great interest in the internal dynamics of their organization and developing competitive positioning in the market.
The road to post-pandemic recovery for salary increases and salary budgets is different than it has been in past economies. Managing the changes to the modern-day talent pool in addition to the requirements of doing business in a new world of work requires organizations to take a fresh view of their approach to compensation and rewards programs. It also requires the most up-to-date data and insights that will support sound decision-making that is both defensible and cost effective.
Max Ashwanden is a key contributor to this article.