Should You Increase Wages to Attract and Retain Employees?

During times of high inflation, employees generally demand higher wages to keep up with rising prices. Today’s rising inflation rates and current labor shortages are forcing employers to respond to employee demands and driving up wages. Employee wages and salaries are expected to continue to grow through 2023. According to industry data, employers plan to raise wages an average of 4.6% in 2023 – up from 4.2% in 2022. The projected wage increase is the largest in 15 years. As a result, organizations are revising their 2023 budgets for employee compensation and benefits to keep up with the market and continue to attract and retain employees.

Increasing Employee Compensation

In 2023, employers are providing larger-than-usual salary increases in response to record-high inflation and ongoing attraction and retention struggles. Most employers are raising salaries twice per year, according to a recent report from Willis Towers Watson. In addition to providing existing employees with salary increases, many employers are hiring workers at higher salary ranges. On average, new-hire pay is 9% higher than usual. Plus, more employers are offering bonuses to reward workers and help with rising costs. Cost-of-living adjustments will likely be more generous as well. According to a survey from compensation management company Salary.com, smaller organizations are more likely to provide cost-of-living increases than larger employers. On average, cost-of-living increases for smaller organizations range between 2.5% to 2.7%.

Ongoing Attraction and Retention Struggles

Employers are prioritizing competitive salaries even amid worrying signs of an upcoming recession. This results in increased labor costs for employers. However, employee wages still lag behind rising costs despite pay increases, indicating that employers’ efforts may be inadequate. This could exacerbate employers’ attraction and retention struggles in 2023, as insufficient pay is the most common cause of employee turnover. To fund salary increases, some employers are being forced to make significant tradeoffs, such as cutting employee benefits and other perks, raising prices of products and services, restructuring, and reducing headcount.

Some employers cannot afford to provide employees with salary increases. These employers are increasingly relying on total compensation statements to help effectively communicate to employees the full value of the benefits and compensation they provide. These statements highlight the monetary value of total benefits packages – including any perks that may be overshadowed by traditional benefits – to give a complete picture. In addition, employers who are unable to provide salary increases are focusing on developing and promoting their workers to improve retention and address concerns of lack of career development and advancements.

Employer Takeaway

It’s unclear how long employers will be able to raise wages and offer competitive benefits and other perks to attract workers and retain existing employees amid the current economic conditions. Consequently, organizations should identify and prioritize the total rewards employees want most to optimize their offerings. Whatever actions employers take to stay competitive, they must consider both employer and employee needs and rely on market data to direct those actions. Meeting employee needs and wants, including salary expectations, will be vital for employers in 2023.

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GTM Can Help You Make Wage Decisions

When pay is equal and competitive, companies and their employees thrive. A good compensation system that reflects current, market-driven annual and variable compensation allows employers to make smart and competitive pay decisions. Our HR experts can help you build a competitive and equitable compensation plan that is cost-effective, competitive, and current. Fill out the brief form below for more information.