2022 has been a challenging year for employers for many reasons. One of the most surprising was the need to increase wages dramatically during the year. Higher salaries made it easier to attract and retain talent in the aftermath of the Great Resignation. Additionally, it helped minimize the impact of inflation on employees, though it typically didn’t fully offset it.
With 2023 on the horizon, many companies have to plan for ongoing wage appreciation. While salary increases aren’t generally near the highs experienced in mid-2022, wages remain on the rise. If you want to make sure you’re preparing accordingly, here’s what you need to know.
Wage Appreciation Is Slowing, But It’s Not Going Away
In comparison to mid-2022, wage appreciation is slowing. However, companies shouldn’t assume that signals an end to these higher-than-normal increases. Ultimately, there are several factors that will keep wage appreciation in place, and they aren’t likely to disappear for some time.
First, labor shortages are still problematic in many industries. As a result, companies will continue to increase salaries as a means of attracting talent. This creates internal pressure to follow suit, particularly for companies that need to keep pace with local competitors.
Second, inflation remains a concern. Even with notable wage increases in 2022, most of these raises haven’t fully covered the impact of inflation. This means real wages have effectively fallen – with the median decline sitting at 8.5 percent – even as companies spend more on salaries.
Rising inflation impacts employee expectations. Reduced buying power alters how they view their salaries, creating a new pressure point for employers.
Finally, many companies are already planning for ongoing wage increases. While shifting economic factors may increase access to candidates, on average, organizations are planning to increase wages by 4.1 percent in 2023. That’s on par with the increases offered in 2022, which also increased by around 4.1 percent.
However, whether a recession occurs could play a factor in whether these planned increases ultimately take place. As a result, companies need to remain agile to ensure they can navigate the situation effectively when preparing budgets.
How to Navigate Wage Appreciation in 2023
In many cases, it’s wise to begin planning for wage appreciation by examining salary increases in your sector. By getting a baseline of the wage appreciation in 2022, you can plan to mimic a similar rate in the upcoming year.
However, there are alternatives available that can help organizations with tight budgets better navigate the uncertainty created by current economic conditions. For example, offering short-term incentives that increase total compensation without the long-term commitment that comes with raises could be wise.
A variety of bonus programs fall into this category, such as sign-on, retention, or performance bonuses. These allow you to offer more compensation without increasing your ongoing, fixed salary costs. If those are coupled with more modest base wage increases, it could provide the needed balance to make navigating wage appreciation easier.
Finally, make sure to remain agile. Continuously monitor wage appreciation in your industry to keep on top of current rates. Additionally, see what alternative compensation is being offered by competitors. This allows you to adapt as the year unfolds, ensuring you can account for the unexpected or adjust if a recession occurs.
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