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If your organization is on a fiscal year that equates to the calendar year, you’re likely breathing a sigh of relief as you close out your annual increase process for 2022. Though arguably not as dramatic as some of the other situations impacting our labor market, there was a fair degree of uncertainty and curiosity around this year’s actual numbers.
In November 2021, when we last reported on US Compensation Planning Pulse survey findings, employers reported that they were budgeting 3.2% for merit increases and 3.5% for total increases. However, in March 2022, when we asked what they actually delivered, likely in Q1 2022, the average merit increases, including zeros, were 3.4% and total increases were 3.8%. Though not a huge increase given inflation and the incredible strain on the labor market, it is an increase from the 2.8% and 3.0% that were delivered in 2021 for merit and total increases, respectively.
Employers cited turnover/retention and business performance most frequently as factors having an impact on their actual salary increase budget. Labor shortages, cost of labor, and inflation were only slightly less frequently indicated in the same impact category.
Through Mercer surveys, we have learned that some organizations plan to review pay more frequently throughout the year, particularly for critical roles.
While the majority of organizations plan to stick to an annual increase cycle, 5% are considering moving to multiple cycles per year, and 6% reported that they already have multiple increase cycles per year.
Additionally, 22% of companies responded that they do have an off-cycle increase budget that is predominantly a separate budget (67%), rather than a hold-back from the annual increase budget (25%). While this off-cycle budget has always been in place to make adjustments for equity and market shifts, we anticipate this will be used more than in years past in order to combat turnover and recruiting challenges in key roles.
With just under half of respondents indicating that they paid out short-term incentives above target and a similar number granting long-term incentives above target, it would appear that organizations met their objectives for 2021. With supply chain issues, labor market challenges, and rising inflation, it’s likely that many organizations set their targets conservatively and we are now seeing higher payouts as organizations have exceeded expectations.
With New York recently passing legislation, it joins several states that have addressed pay transparency. Organizations that have a multi-state or national presence are surely enacting plans to increase pay transparency, knowing that it’s only a matter of time before it’s more widespread, right? Some are, and some aren’t.
A little over a third indicated that they either have increased their pay transparency (12%) or are considering it (24%). Although some employers stated government regulation was the force behind their change, more stated it was a change in compensation strategy or philosophy.
This job market and the behavior of candidates and employees is challenging, to say the least. Add rising inflation to the mix and it’s no wonder your HR people are feeling stress like never before. However, the spotlight is on Human Resources right now, and for good reason. It’s our time to dig deep, get creative, and find out how to get people back in “seats,” even if they’re not in an office.
How can we meet the ever-growing list of needs, wants, and desires that today’s employees are looking for? It’s not easy, and there’s no one answer, but we can do it. Plug into the data and resources available to you — including peers and consultants — and figure out what will work for your organization. You got this.
If you need advice, Mercer is here for you. Give us a call at 855-286-5302 or email surveys@Mercer.com.