Your raise will likely be smaller this year – but more frequently

Thanks to the persistently high number of vacancies and massive turnover, more companies gave their employees above-average salary increases in 2022. While these increases overall have not kept pace with high levels of inflation, actual wage growth for private employees rose by an average of 5.3% at the end of last year.

“Companies caught up last year,” said Lexi Clarke, vice president of people at Payscale. “The rising inflation, the hot labor market, all these internal injustices – there was a real urge to correct, especially when these pay transparency laws were introduced.”

But if last year was about catching up, 2023 is more about staying the course. Amid economic uncertainty and the high-yield environment beginning to weigh on businesses, most employers plan to take a more conservative approach to wage increases this year.

About 80% of employers plan to give their workers some sort of raise in 2023 — up from 2022 levels, according to Payscale’s 2023 Compensation Best Practices Report. About 15% of the 5,000 compensation professionals, HR directors, and CEOs surveyed by Payscale said they were still unsure about offering raises.

“Going forward, as inflation eases, as the job market cools a bit… we will see these increases really stabilize from last year’s payouts as companies become a little more cautious amid the uncertainty surrounding this economic outlook. ‘ says Clarke.

Of those organizations planning raises, about 56% of employers are planning a base pay increase of over 3% this year — and that’s actually a slight increase from 2022. But even workers at these companies shouldn’t expect big raises. The average base pay rise in 2023 will be between 4% and 5%, while in 2022 more pay rises were above that 5% number, Clarke says.

However, workers are more likely to see pay rises

But even as employers pull back larger wage incentives, companies are still very focused on retaining workers – especially given that as of December 2022 there are still 11 million job openings and just over 4 million workers are quitting monthly . That’s perhaps one of the biggest forces behind a growing trend Payscale is seeing: Employers are increasing the frequency of raises. So in 2023, more Americans are likely to experience smaller and more frequent year-round pay increases that extend beyond the traditional performance and compensation review period.

“Companies are increasing the rate at which they grant raises because they have realized that the annual raise may be too infrequent to retain that talent,” Clarke says.

Payscale data shows that the number of employers planning to offer formal raises at least twice a year will more than double starting in the 2022-cycle in 2023.

But don’t be fooled, this is more of a retention game and not really related to ensuring wages keep up with inflation. “We’re seeing employers responding to that labor cost and not the cost of living,” Clarke says. “Employers don’t make decisions about the final budget or compensation recommendations based solely on the rate of inflation.”

Learn how to navigate and build trust in your organization with The Trust Factor, a weekly newsletter exploring what leaders need to succeed. Login here.