October 5, 2021, 0 Comments

Typical Salary Increases Won’t Keep Pace With Inflation

The Society for Human Resource Management recently posted a very detailed article on 2022 salary increases versus inflation rates. The author, Stephen Krebs, CEBS, is SHRM’s Online Manager/Editor, Compensation & Benefits. Below is a summary of the article. Read the entire article here.

Companies continue to face a perfect storm of economic concerns – the pandemic, inflation, unrest across other nations, and other uncertainties – that have made it a challenge for employers to manage budgets. When COVID-19 hit, budgets were often slashed, and salaries were frozen. As the U.S. economy continues to recover, employers are finding it increasingly difficult to fill positions with salaries that, at the very least, will keep pace with the inflation rate.

According to venerable organizations such as The Conference Board, Independent Institute, ADP Research Institute, Willis Towers Watson (WTW), PayScale, WorldatWork, Empsight, and Salary.com, there is agreement that the usual 3 percent salary increase will hold true in 2022, with a small percentage of organizations planning to give 4-5 percent increases. According to Salary.com, these planned increases will be offered across all job categories and to hourly employees up to executive-level employees.

“This is the first sign of a notable shift in salary budget increases in 10 years, particularly for hourly employees who have long experienced stagnant pay,” said Chris Fusco, senior vice president of compensation at Salary.com, a provider of compensation data and analytics. “Minimum wage legislation sweeping the country is a big factor. But the re-emergence of lower-level workers executing their market power is undeniable. Aging Baby Boomers and pandemic-related worker shortages have created this scenario where we have more jobs than we have people willing, or able, to work.”

So, what’s the rub? Let’s look at the numbers.

  • The Bureau of Labor Statistics reported:
    • A year-over-year inflation rate of 5.4 percent
    • Consumer prices rose 5.3 percent
  • The Department of Labor (DOL) reported:
    • The energy index in August 2021 rose 25 percent over the last 12 months
    • The food index increased 3.7 percent over the last 12 months.

We don’t need to be a mathematician to figure out that these numbers may just wipe out any real gains in employment compensation. Couple that with salary freezes or decreases in 2020, and employees could be even further behind. This weakens consumer spending and could also result in higher turnover rates.

Is There Any Positive News?

PayScale, a compensation data, and software firm, reports that wages are rising particularly fast for occupations such as food services (up 4.1 percent), transportation (up 4 percent), and retail (up 3.9 percent.

For employees looking for a new opportunity, ADP Research Institute reports that most workers in the U.S. will get an average of a 5.8 percent raise by changing jobs. A bit of a good news/bad news scenario. Employers will have to weigh the balance between losing a valued employee over a few percentage points just to hire and train someone new at a higher salary.

“Companies are between a rock and a hard place when it comes to compensation planning,” said Catherine Hartmann, North America Rewards practice leader at WTW. “On one hand, employers need to continue effectively managing fixed costs as they rebound from the pandemic. On the other hand, companies recognize they need to boost compensation with sign-on, referral, and retention bonuses; skill premiums; midyear adjustments; or pay raises.”

Arlington Resources produces a salary survey two times a year. Reach out to our team to help recruit suitable candidates and determine the best compensation offers for your current employees and job applicants.