Inflation may be hitting new 40-year highs, but less than a quarter of U.S. organizations say they are revising their salary budgets due to inflation—despite many workers asking for raises or other actions to cope with higher prices, according to a new survey.
Mercer, the human resources consulting firm, surveyed more than 300 U.S. employers in March and found that 45% do not factor inflation into salary budgets. Less than 25% say they are making changes to their salary budgets because of inflation—yet 42% say workers have been asking them to take financial actions to help with rising costs.
Still, the survey found that nearly half of organizations say they will conduct additional salary reviews for either some or all of their employees as a response, a sign some may be growing concerned about losing workers if they don’t take action. A full 77% said dissatisfaction with pay or an offer of higher wages at another firm were the top reason they were seeing turnover among their ranks.
“Organizations are being cautious about setting a practice of paying primarily based on cost of living, as opposed to cost of labor,” Tauseef Rahman, a partner at Mercer, said in an email about the new survey data. He was referring to the way many employers make decisions about compensation, determining what people with certain job titles in specific regions are typically paid.
He’s not surprised by the disconnect between what employees are requesting and what employers have done so far in response. As Rahman says, “the concern is that organizations can create the expectation that pay is entirely based on cost of living, and not based on the cost of labor which has more to do with availability and demand of talent.” One challenge, he says, is that employers “might not have been clear with candidates and employees as to … [how] pay was being set.”
At the same time, Mercer’s survey also finds that 50% of organizations say they’re paying more than market rate due to the challenges they face finding and keeping employees, and 41% say they are implementing some kind of retention bonus.
Meanwhile, 60% of respondents reported seeing an increase in the number of counter-offers candidates are receiving, and about 30% say they are beating or matching counter-offers.
Josh Bersin, a human resources industry analyst, says he’s hearing from companies that inflation is having an impact. “Everyone I talk to is going through this re-evaluation, saying ‘you know what, we’ve got to add more money. We’ve got to reset salaries more often to adjust,’” he says.
“There’s a saturation point—you can’t compete based entirely on wages,” Bersin says. “But we’re at the point right now [of people saying] ‘I will not work for you unless you can pay me more money.’ So there’s this stair-stepping process going on, [where] everybody’s raising their wages a tiny bit at a time.”
“There’s this stair-stepping process going on, [where] everybody’s raising their wages a tiny bit at a time.”
Bersin thinks the Department of Labor’s data may be a little behind what’s happening within employers’ payrolls. Consumer prices rose 7.9% in the 12 months that ended in February, according to data the Labor Department released last week. At the end of the fourth quarter of 2021, the U.S. employment cost index showed that compensation costs for civilian workers increased 1% for the three-month period ending in December 2021, with wages and salaries increasing 4.5% last year.
While that is a two-decade high, Bersin thinks “wages are probably going up faster than the federal government realizes,” he says. One human resources executive he spoke with recently told him “we’ll issue a job offer on Monday, they’ll accept the job on Thursday … [and] they don’t show up. Over the weekend they got a job for 50 cents more an hour. It’s just that fast.”
Some companies are finding other ways to provide more compensation to people. For instance, Jonathan Johnson, Overstock.com’s CEO, says his company issued stock to a broader group of employees. The company’s research shows it is above the national average on pay in the markets where they compete for talent, Johnson says.
“You can’t spend your equity at the gas station, but it can help you create wealth and it maybe helps you save,” he says. The company also did not increase what employees pay for medical and dental benefit premiums this year.
Rahman says that where companies are offering raises due to inflation, they tend to be “targeted adjustments” that are based on things such as the competitiveness of pay, an individual’s performance, or business needs. Just “like inflation is complex and not a single number for everyone, pay adjustments are similarly complex.”
I am a Senior Editor at Forbes, leading our coverage of the workplace, careers and leadership issues. Before joining Forbes, I wrote for the Washington Post for more than a decade…
Employee demands are driving changes in compensation strategy as employers respond to labor shortages and surging inflation, new research shows. Pay data and software firm Payscale’s 2022 Compensation Best Practices Report reveals that 85 percent of organizations are concerned about rising inflation eroding the value of pay increases.
The survey gathered responses from management-level decision-makers at 5,578 organizations, mostly based in North America, from November 2021 to January 2022.
In January 2022, inflation was 7.5 percent higher compared to a year earlier—a 40-year high. The unprecedented jump in inflation rates has 85 percent of organizations worried that planned 2022 pay increases won’t be enough. At the same time, 76 percent of organizations faced labor shortages or difficulty attracting talent in 2021, and 49 percent said that voluntary turnover had increased compared to previous years.
The survey also highlights which benefits have become more common, such as:
- A 25 percent increase for remote-work options (now being offered by 65 percent of surveyed employers).
- An 8.3 percent increase in work-from-home stipends (offered by 15 percent).
- A 7.7 percent increase for flex-time options (offered by 37 percent).
- A 7 percent increase in mental health or total wellness programs (offered by 66 percent).
In addition, 40 percent of organizations said they were interested in location-based pay strategies with geographic differentials to determine pay for widely distributed workforces.
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