Organizations Are Planning to Give the Highest Pay Increases

Payscale Inc., the leading provider of compensation data and software, released the results of its annual survey, the 2022 Compensation Best Practices Report (CBPR), revealing the trends driving major changes in compensation and total rewards. The largest report of its kind, with over 100 charts and detailed analysis, the CBPR examines the attitudes of employers on topics impacting the workforce including labor challenges, pay raises, compensation strategy, remote work, pay equity, and pay transparency. As labor shortages impact production and inflation surges, highlights from this year’s findings prove that employers are more concerned than ever with attracting and retaining top talent and are fighting to remain competitive in the job market by offering more significant pay increases than previous years, as well as more workplace flexibility.

“The lasting impact of the pandemic on the labor market has shown us that when it comes to pay, employers are scrambling to figure out what to offer new hires and how to structure salary increases to retain their current workforce. As a result, compensation planning has never been more important to get right,” said Shelly Holt, Chief People Officer at Payscale. “But compensation strategy doesn’t just mean pay increases. What matters most to employees overwhelmingly includes things that enhance their lives, from better benefits that account for both physical and mental health to workplace flexibility and remote work.”

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Forty-four percent of organizations plan to give pay increases higher than 3 percent – a staggering 13 percent more than the labor market has seen in the last six years. However, despite this increase, planned pay raises are unlikely to keep up with inflation, with the real value of wages on a steady decline when adjusted accordingly. In December of 2021, inflation was 7 percent higher compared to a year ago — which was at a 40-year high. This unprecedented jump in inflation rates has 85 percent of organizations worried that planned 2022 pay increases won’t be enough. This is particularly concerning given that 76 percent of organizations have experienced labor shortages or difficulty attracting talent in 2021 and 49 percent say that voluntary turnover has increased compared to previous years.

Payscale’s CBPR also highlights variable pay and benefits as part of total rewards, with the benefits that have increased the most in 2022 compared to before the pandemic including a:

  • 25 percent increase for remote work options (65 percent total)
  • 8.3 percent increase in work-from-home stipends (15 percent total)
  • 7.7 percent increase for flex-time options (37 percent total)
  • 7 percent increase in mental health or total wellness programs (66 percent total)
  • 3.2 percent increase in 4-day work week structures (11 percent total)

However, despite their best intentions, only half (53 percent) of organizations are confident in the ability of their total rewards packages to attract and retain talent.

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Additionally, less than half (42 percent) of organizations currently have a pay strategy for remote workers or are working on one, despite 43 percent of workers expecting remote work options to increase after the pandemic, as highlighted in Payscale’s Remote Work Report. Less than half of organizations (47 percent) are concerned that remote work will disrupt the competitive landscape for talent and 74 percent say that remote work is not a driving factor for adjusting their compensation strategy. This is likely because three-fourths of organizations (75 percent) say they will have either a traditional or hybrid office when the pandemic ends, which means talent will still have to live within a commutable distance. However, 40 percent of organizations are interested in location-based pay strategies with geo differentials which would make determining pay easier for workforces that may become more distributed.

Looking beyond employers’ reactions to the labor market, encouragingly, Payscale’s data shows that attention to pay equity is on the rise. Sixty-six percent of organizations surveyed said that pay equity analysis is a planned initiative in 2022, a 20 percent increase over last year, with 52 percent saying they plan to conduct either a gender or racial-based pay equity analysis specifically — the first time this has been a majority in the 13-year history of the CBPR. This is certainly work that needs to be done, as just a little over a third of organizations are aware of what their gender (36 percent) and racial pay gap (29 percent) currently is.

“Workers are more focused than ever on pay equity, with an increased number of organizations rising to the occasion to get pay right,” said Ruth Thomas, Pay Equity Strategist at Payscale. “It’s not just about pay raises; employees are demanding equal pay for equal work and employers must consider this when restructuring their compensation strategies or risk employees seeking new opportunities.”

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