The all-encompassing effect of inflation continues to be felt in every aspect of life. In July, the U.S. annual inflation rate was 8.5%, down slightly from a 40-year high of 9.1% in June. Thankfully, creeping inflationary measures might not necessarily signal the end of salary raises for high-performing employees, according to a survey from Gartner Finance Practice.
The 2022 survey of 130 CFOs and CEOs demonstrated 51% of organizations still look favorably on giving salary increases for high-performing employees. The performance of employees continues to be a critical determining factor when it comes to pay raises for salaried and hourly employees. These raises are often in response to cost-of-living increases and inflationary impacts.
Survey results from Fisher Phillips LLP, a national labor and employment firm, found U.S. employers are budgeting their highest average raises in 15 years in 2023, according to early data from Willis Towers Watson PLC, an insurance advisor. This is good news for employees but could be difficult to swing for smaller companies that already have tight margins.
Conversely, long-time employees may see more of a loyalty tax. The Pew Research Center found that median workers that changed jobs between April 2021 and March 2022 saw an increase of 9.7% in real earnings when adjusted for inflation. Workers who stayed in the same job experienced a loss of 1.7% in real earnings.
“Rising labor costs are among the most negatively impactful to operating cash flow, and it follows that we see a more limited approach to pay rises either by performance or in select markets for now,” said Randeep Rathindran, vice president, research in the Gartner Finance Practice. “Organizations will continue to look at benefits beyond compensation as an approach to fight employee attrition and keep costs across the labor force as balanced as possible.”
Although it remains a tight labor market and a candidate’s market, CEOs and CFOs are attempting to limit employee expectations when it comes to receiving a raise this year. Of those polled, 70% indicated pay raises would be available to high performers or employees in certain markets, particularly in areas where inflation is the most severe. Such a restrictive approach was favored by one in four of those surveyed.
Hold the Line
This means not all employees will receive the pay rise they may want or need, particularly when it comes to large-scale pay increases. Those expecting a big bump could be disappointed and only time will tell. For now, CFOs and CEOs will continue to watch what is happening with the state of inflation and navigate changes in the labor market to determine any necessary changes in policy.
Luckily, CEOs still see salary as a primary way to retain talent, according to Rathindran. The decision-makers surveyed signaled being open to making an investment in higher compensation in the future. Forty-three percent of respondents indicated they would give out one-time bonuses in addition to pay adjustments in the name of talent retention. Thirty-nine percent of respondents said they have plans to fully or partially index pay adjustments to inflation.