Revised 2022 Salary Increase Budgets Head Toward 4% (2023)

Updated Inflation Statistics

Adding more pressure on employers to raise wages, consumer prices rose 8.5 percent year over year in March, the highest inflation rate since 1981, the U.S. Bureau of Labor Statistics (BLS) reported on April 12, 2022.

The latest figures show that inflation continues to escalate. The consumer price index (CPI) had risen 7.9 percent in February from a year earlier and was up 7.5 percent in January year over year.

Higher inflation means the buying power of workers' take-home pay is shrinking. Real (inflation adjusted) average hourly earnings fell 2.7 percent, seasonally adjusted, from March 2021 to March 2022, the BLS separately reported on April 12.

For more on how inflation is affecting employee pay budgets, see these 2022 SHRM Online articles:

  • Salary Budget Growth of 5% Most Common Increase in New Survey
  • Highest Pay Increases in Years Won't Match Inflation
  • Inflation Rate Hits 40-YearHigh,Driving 'Real' Wages Down
  • Wages and Salaries Up 5% for Private Industry Workers in 2021, Less Than Inflation

In midyear 2021, most salary increase budget projections were pegged at around 3 percent to 3.2 percent for 2022. Those expectations have since gone by the wayside.

In newly released findings by The Conference Board, a membership and research organization for large businesses, executives now estimate that salary increase budgets for 2022 will be 3.9 percent, which would be the highest growth rate since 2008.

Due to high wage growth and inflation since April 2021, when The Conference Board conducted its 2021 Salary Increase Budget Survey, the organization decided to field the survey again. It did so from Nov. 8 to Nov. 19, 2021, with responses from 240 U.S. employers, more than half of whichare companies with more than 10,000 workers.

Among the findings from the November survey:

  • The projections for 2022 salary increase budgets jumped almost a full percentage point, from 3 percent in April to 3.9 in November.
  • Looking back at 2021, the average salary increase budget for this year jumped from 2.6 percent in the April survey to 3 percent in November.

Future Wage Growth to Top 4%

"It is likely that severe labor shortages will continue through 2022," wrote Gad Levanon, vice president of labor markets at The Conference Board. "During that time, overall wage growth is likely to remain well above 4 percent. Wages for new hires and workers in blue-collar and manual services jobs will grow faster than average."

At the same time, he noted, "there are no signs of inflation slowing down, and it may remain elevated in the coming months, increasing the need for cost-of-living adjustments."

He warned, "A wage-price spiral—where higher prices and rising wages feed each other, leading to faster increases in both—may already be in the works."

In the chart below, "salary increase budgets" refers to the pool of money an organization dedicates to salary increases for the coming year. It is strongly related to the typical raise a worker would receive in a given year, as represented by a percentage of current payroll. "Salary structure movements" are adjustments to the minimums, midpoints and maximums of an organization's pay ranges to account for changes in the cost of living and salary markets within a given industry.

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Pay Compression Issues

While overall wage growth dramatically accelerated during the past 6-8 months, Levanon noted, "that increase is especially strong for workers under the age of 25 and for people who switched jobs in the past year. This suggests that much of the wage acceleration has been among workers who were recently hired."

Faster wage growth of new hires, however, creates pay compression, which then puts further pressure on employers to raise pay across the board.

"When more experienced workers feel that their pay advantage is no longer significant, they may seek new jobs in the tight labor market, which leads to high labor turnover of more experienced workers," Levanon explained. "Employers faced with extensive departures of experienced workers will raise wages faster for current employees in order to maintain an effective workforce."

Pay compression furtherpressures employers to raise pay across the board.

Rising Pay Still Trails Inflation

HR consultancy Mercer also expects that the average amount of employee raises in 2022 will be higher than assumed earlier this year but doesn't expect salary increase budgets to rise quite as high as The Conference Board is forecasting—at least not yet.

While the pandemic has driven inflation up to levels not seen since 1990, with consumer price increases up 6.2 percent for the year as of October 2021, employers are not expected to be able to cover all of employees' rising costs, Mercer noted in its latest compensation planning survey of more than 950 employers. [Update: the consumer price index increased 6.8 percent year over year in November 2021,the U.S. Bureau of Labor Statistics reported on Dec. 10.]

Mercer's researchers found that as of October 2021:

  • Merit budgets for discretionary annual increases to base pay, typically for employee performance, are projected at 3.2 percent for 2022. Total increase budgets, which include merit along with other types of base pay increases such as promotion pay increases, are projected at 3.5 percent. These numbers are up slightly from the 2022 projections of 3 percent and 3.3 percent, respectively, according to Mercer's August survey, and they represent a gain over the actual 2021 budgets of 2.8 percent for merit and 3 percent for total increases.
  • Variable-pay incentive bonuses, which are one-time cash payouts that do not affect base pay, are projected to significantly increase compared to last year, with 1 in 4 employers saying they will have an overall bonus pool more than 10 percent higher than last year.

The majority of employers set compensation wages based on cost of labor—the market rate for a job—versus cost of living. Because of this, there isn't a direct relationship between annual merit budgets and inflation, Mercer said.

Over the last 10 years, inflation has typically hovered between 1 percent and 2 percent, while merit budget increases have been between 2 percent and 3 percent, the consultancy noted. While the current labor market is driving some increases in pay, employers are concerned about economic uncertainty "and therefore looking to other vehicles such as incentive pay to reward and retain workers in this tight labor market," the researchers said.

"The reality is that most employees would have no trouble finding a new role, and likely command a premium for job switching," Mercer reported.

Delaying Pay Budget Decisions

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As 2021 draws to a close, merit increase projections for 2022should still be considered preliminary, said LaCinda Glover, a senior total rewards consultant at Mercer.

With the economic uncertainty posed by COVID-19 and its variants, rising quit rates and resurgent inflation, "employers are likely to defer [salary budget increase] decisions until the latest possible date, just as we saw in early stages of the pandemic," she noted.

"About one in five employers have merit budgets that have been approved by leadership and about 50 percent indicate they're still in preliminary stages of collecting information and figuring out what they're going to do," Glover said.

According to Mercer's report, "the majority of employers do not provide increases until March or April... so the reality is that these numbers may still change."

Off-Cycle Increases and Higher Minimum Wages

Merit budgets do not capture all types of pay increases, Glover noted. Off-cycle market-based raises generally occur outside of the merit process and have become more frequent "as employers react to the labor market and try to keep pace."

Off-cycle pay adjustments are often off-budget as well, as only about one in four organizations report having budgeted for them, Glover said, and those budgets are typically around 0.5 percent to 1 percent of pay.

Relatedly, more organizations are trying to hire and keep hourly workers by raising minimum wages. Mercer found that 37 percent of employers increased their minimum wage this year and another 5 percent said they were considering it before the end of the year.

Wages aren't likely to stabilize "until we see significant changes in the quit rate and the number of job openings," Glover predicted.

Year-over-year inflation exceeds 6 percent for the first time in decades, she noted. "Layer on top of this the media coverage surrounding compensation, and employee expectations are near an all-time high."

Pay Planning Tips

Lauren Mason, senior principal in Mercer's career business division, sharedthree recommendations for employers to consider during this year's compensation planning period:

Prioritize hourly pay

"With unprecedented levels of churn in the labor market, wage growth at record pace and increasing external scrutiny, now is the time to focus on hourly pay strategies," Mason advised.

Consider a segmented approach

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Ensure budget dollars "are focused on addressing gaps in competitiveness and not being spread like peanut butter," Mason said. "Consider a segmented approach by offering higher wages to both new joiners and high-performing current employees in critical business segments," as well as those whose pay is below market rates.

Keep in mind the employee experience

Employees have heightened expectations around pay, so equip leaders with the resources to communicate pay decisions effectively, Mason recommended.

Aside from pay, she noted, "in many cases it's when the broader employee experience falls short that employees will start to shop their options. Employees are feeling exhausted and burnedout from the pandemic. Employers need to examine ways to support their employees' unmet needs, deliver more compelling jobs and create more flexible work environments."

[Addendum]

Empsight Revises 2022 Salary Budget Forecast

Compensation survey and consulting firm Empsight's Spot Survey of 2022 Salary Budget Forecasts & Retention Practices reports responses from 136 Fortune 500 and large multinational companies surveyed between Nov. 15 and Dec. 6, 2021. The projected increases for 2022 were consistently higher than in the firm's midyear 2021 survey.

Forecasted Merit Increases
The table below summarizes forecasted merit increases, excludingzero increases:

Average 25th Percentile Median 75th Percentile
Overall 2022 forecast
3.23%3.00%3.00%3.48%
Executive3.26%
3.00%3.00%3.50%
Management
3.24%3.00%3.00%3.50%
Professionals3.27%3.00%3.00%3.50%
Support/nonexempt
3.22%3.00%3.00%3.50%

Source: Empsight.
Note: Unlike the mathematical average, the median is the middle value after listing expected budget increases in successive order. Outliers, or extreme values on either the high or low end, have the bigger effect on the average and less on the median.

Forecasted Total Salary Increases
The table below summarizes forecasted total salary increases (merit + promotions + specialadjustments). This table only reports on companies that provided forecasted promotions and/or special adjustments in addition to forecasted merit budgets.


Average 25th Percentile Median 75th Percentile
Overall 2022 forecast
4.12%3.50%
4.00%4.30%
Executive4.06%3.30%3.63%4.29%
Management4.11%3.35%4.00%4.40%
Professionals4.23%3.35%4.00%4.40%
Support/nonexempt3.92%3.30%3.75%4.40%

Source: Empsight.


Related SHRM Articles:

Turbulence Ahead: Will 2022 Break Compensation Budgets?, SHRM Online, December 2021

Hiring and Benefits Costs Hit 16-Year Highs, SHRM Online, November 2021

(Video) Seattle City Council Select Budget Committee 9/28/22

As Minimum Wages Rise, Prepare for Pay Compression Issues, SHRM Online, October 2021

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

FAQs

How Much Should salaries increase in 2022? ›

The ONS reports that the average salary increase in 2022 are currently 6% (August 2022 figures). The private sector is seeing larger than average increases of 6.2% whereas public sector, facing funding squeezes, falls behind at 2.2%.

Will there be an increase in salary in 2022? ›

The survey revealed that 2022 actual salary increases were higher than what was planned in 2021: 22% of organizations gave increases in the range of 4% to 5% versus the 12% that had planned to do so last year.

Is there a salary increase for 2022 in Philippines? ›

Manila, The Philippines, 23 November 2022 – Employees in the Philippines can look forward to a median 5.5% increase in their salaries next year, up from 5.3% this year, according to Mercer's annual Total Remuneration Survey (TRS) 2022.

What is the average salary increase for 2022 in Singapore? ›

In 2022, workers in Singapore received a salary increase of 3.8% in nominal terms and this rate of growth is forecast to rise further to 4.0% next year. Inflation in Singapore this year is 5.5%, similar to the average rate of inflation in the region, and is expected to fall to 3.0% in 2023.

Is a 4% raise good in 2022? ›

“It's now budgeted for 4% and potentially higher for next year.” New data released by Salary.com, a software company that provides compensation data and analytics, found that the median pay increase of 4% is continuing an upward trend that began in 2022.

How much should my salary increase with inflation 2022? ›

Yet a survey of U.S. companies found employers now are budgeting an overall average salary increase of 3.4% in 2022, which is less than half the current inflation rate (though notably it represents a substantial rise from the average 2021 salary increase of 2.8% - a 21% difference).

Is a 4 percent raise good? ›

The average pay raise is 3%. A good pay raise ranges from 4.5% to 5%, and anything more than that is considered exceptional.

How do you calculate a 4 percent raise? ›

If you know the raise percentage and want to determine the new salary amount: Convert the percentage into decimal form. Multiply the old salary by this value. Add this new value to the old salary.

Is a 3% raise good in 2022? ›

The 3 percent median increase for 2022 is expected to hold steady across employment categories (i.e., nonexempt hourly, nonexempt salaried, exempt and executive), according to Judit Torok, a senior research analyst at The Conference Board, a large-business membership and research association.

What is the average annual salary increase in 2022? ›

According to our extensive research: The average annual raise in the US is 7.6% as of 2022. The average salary increase when changing jobs is 14.8%, while wage growth is 5.8% for those who remain at their job.

What is the standard salary increase in Philippines? ›

On average, companies in the Philippines are expected to give out pay hikes of about 5.7% next year compared to the average of 5.5% in 2022 based on global advisory firm Willis Towers Watson's Salary Budget Planning Report.

How much is the basic salary in Philippines 2022? ›

What is minimum wage in Philippines? Minimum Wages in Philippines increased to 570 PHP/Day (11970 USD/Month) in 2022.

How much should a salary increase per year? ›

The average annual pay raise was about 4.6% in 2022. Pay raises are smaller in normal years, usually around 3%. Many factors influence whether you'll see a pay raise in 2022. Collect data on what your compensation should be and what you're doing to warrant a higher pay rate to help you in your pay raise negotiations.

How much of a of a cost of living raise will we get in 2022? ›

The 2022 COLA of 5.9 percent increased the average retirement benefit by $92 a month. In 2021, payments grew by an average of $20 a month on the back of a 1.3 percent adjustment.

Will salary increase in 2022 due to inflation? ›

Indeed, in the second quarter of 2022, job-switchers saw their pay grow by 9.5% year-over-year, while wages for job-holders went up by 7.2%, according to ADP data. But with inflation hitting 9.1% in June, a lot of those wage gains aren't enough to keep pace with rising living costs.

Is 4% raise alot? ›

The only way to make more was to get a new role within the company, like a promotion or new job title. Employees who meet their goals and meet the company's expectations are generally entitled to a 3% increase, which is the national average; however, that average could increase between 3 and 4% in 2022.

Is a 3% raise enough? ›

An annual pay increase of 3% may not sound substantial, especially given what's been going on in the world. But in today's environment, it's better than anything. Remember that over time, relatively small raises will compound and may very well result in a very nice salary.

What percentage should a pay rise be? ›

A 3% annual pay increase tends to be considered generous – even when inflation is higher than this. This general rule should not put you off asking for more money, however, if you think you are being underpaid.

How do I calculate my raise increase? ›

Here's a step-by-step process:
  1. First, determine the difference between the employee's old and new salary: $54,000 – $50,000 = $4,000.
  2. Next, divide the raise amount by their old salary: $4,000 / $50,000 = . ...
  3. To turn the decimal into a percentage, multiply by 100: 100 X . 08 = 8%
3 Jun 2022

How do I calculate the percentage of a salary increase? ›

Multiply the salary (23,500) by the percentage (2.5) then divide it by 100. This gives the 2.5% amount which is 587.5. Then add the 2.5% amount (587.5) to the current salary (23,500) to get the new salary which is 24,087.5. Now you're ready to apply what you've learnt about percentages to your own pay.

How do I add 3% to my salary? ›

Let's start with our example of an employee making $52,000. Using our formula, a 3 percent raise would look like this: $52,000 X . 03 = $1,560 raise over the course of the year.

How much salary increase is expected? ›

Despite a 3.5% average nominal pay increase, salaries in real terms fell 5.6%, due to 9.1% average inflation. They are set to tumble another 4% in 2023.

What is the monthly basic salary? ›

Basic salary, also called base salary, is the amount of money a salaried employee regularly earns before any additions or deductions are applied to their earnings. Additions and deductions to basic salary can significantly affect the size of an employee's paycheck.

How much is basic salary? ›

Basic Salary refers to the amount of money that an employee receives prior to any extras being added or payments deducted. It excludes bonuses, overtime pay or any other potential compensation from an employer. The whole amount of basic salary is part of the take-home salary.

Is basic salary the starting salary? ›

What is a base salary? A base salary is the minimum amount you can expect to earn in exchange for your time or services. This is the amount earned before benefits, bonuses, or compensation is added. Base salaries are set at either an hourly rate or as weekly, monthly, or annual income.

What will Raises look like in 2022? ›

Companies are now budgeting an overall average increase of 3.4% in 2022, compared with the average 3.0% increase they had budgeted in June 2021. Fueled by tight labor markets, U.S. employers are boosting their original salary increase projections for 2022 as the Great Resignation shows no signs of abating.

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