War for talent, inflation spark highest pay hikes since 2007: Study

Overall salary increases in the US will be above 4.2% this year

Companies plan to boost salaries 4.6 per cent for next year, up from earlier expectations and an increase over their budget for this year, as inflation and a resilient labor market have sent business scrambling to sweeten pay or risk losing their best people.

Overall salary increases in the US will be the most since 2007, a survey of 1.550 organizations from workplace consultant Willis Towers Watson (WTW) found, and above the 4.2 per cent increase for this year. 

A similar WTW survey conducted earlier in the year saw just a 4.1 per cent increase for 2023. Seven out of ten companies have spent more than they had planned on pay adjustments over the past year — mid-year salary hikes have gone from rare to commonplace — and some firms are responding by jacking up their own prices or reducing headcount.

The revised survey shows how employers, and the consultants who advise them, have had to quickly recalibrate their compensation budgets for next year in light of stubborn inflation, a still-tight labor market and a cooling economy. 

Increased demands for workplace equity, along with new pay transparency laws in places like New York City, have also pressured employers to widen their compensation budgets. Three in four respondents to the WTW survey said they’re having trouble recruiting and retaining talent, a figure that’s nearly tripled since the pandemic hit in 2020. More than half said they are hiring candidates at the upper end of salary ranges.

Even as they dole out higher salaries, fewer than one in ten employers plan hikes that would match inflation, according to research from consultant Gartner Inc. 

More common tactics include increasing flexible-work arrangements or boosting incentive or merit-based pay. 

Separately, unemployment claims unexpectedly fell slightly last week and remained near historic lows, according to the Labor Department, proving the resilience of the jobs market even as the Federal Reserve aggressively raises interest rates to clamp down on decades-high inflation.  Despite layoffs at high-profile employers like Twitter, Amazon.com Inc. and Facebook parent Meta Platforms, employers are still hiring at a solid pace. 

The US added more jobs than forecast last month, and there are still almost two open positions for every American seeking work.