Senior Client Partner, ESG & Global Leader Total Rewards
Pay in 2023: A Difficult Balancing Act
As the calendar races towards 2023, companies are waving a caution flag regarding something that never fails to hold our interest: compensation and reward plans.
Faced with uncertainty over inflation and a possible recession, most companies plan to raise salaries, but not enough to keep up with the cost of living, according to a major Korn Ferry survey. The survey found that more than two-thirds of firms are already seeing, or preparing, for a decline in business. Yet 67% are not yet planning to reduce total rewards budgets. “The yellow caution light is up right now,” says Don Lowman, leader of Korn Ferry’s Global Total Rewards practice. “Most companies aren’t sure if it is going to turn green or red next.”
The survey—Korn Ferry’s latest Global Total Rewards Pulse Survey—is the seventh in a series focusing on compensation and reward strategies, hiring, and back-to-office policies. The results are based on responses from nearly 7,000 human-resources and finance executives in companies with between 100 and 20,000 employees across 112 countries.
In good news for employees, the survey found that on average, companies are planning 2023 wage increases of between 4% and 4.5%. That’s about a percentage point more than each of the annual increases of the last decade, says Ron Seifert, leader of the North America Workforce Reward and Benefits practice. “Salary budgets got bigger as the year went on,” he says. But how much bigger—or smaller—depends on the firm’s geographical location. Brazil reports planned increases of more than 8%, while Japan expects to raise wages by only 2.7%. Wages are forecast to rise by 4.4% in the US, and by 5% in the UK.
And while wage increases may go up, they still trail the inflation rate. “A significant portion of companies are taking a wait-and-see approach,” says Alasdair Walls, Head of the UK & Ireland Rewards and Benefits advisory practice. “They don’t want to lock in costs now only to have layoffs if a recession hits.” Still, the survey found that 27% of organizations do plan to offer supplemental compensation or benefits to offset inflation. The most common forms of supplemental compensation include a onetime cost-of-living payment, subsidies for food and commuting, and a monthly cash allowance.
Lowman points out that the survey was conducted during a time of unprecedented uncertainty, as organizations in all industries confronted the competing realities of the Great Resignation, historically high inflation, labor supply-and-demand imbalances, low unemployment, and a looming recession. “Taking that into account,” he says, “it’s not surprising that firms cautiously increased their salary budgets for 2023 but with increases that trail inflation levels.”
Where companies intend to take action against economic headwinds is in hiring. Half of all organizations surveyed are altering their hiring plans for 2023, with freezes or critical-role-only hiring the most common adjustments. The important thing to note, however, is that these actions are being planned in lieu of layoffs, not in addition to them. In other words, the layoffs in tech, media, and other sectors are not indicative of a larger trend across industries. Fully 82% of companies polled—in consumer goods, retail, financial services, healthcare, manufacturing, and other industries— say they have no plans for workforce reductions.
Furthermore, Lowman says that the focus on retention reflects ongoing high turnover and competition for talent. In fact, turnover in critical roles such as data and analytics, engineering, and sales is so widespread that more than half of companies surveyed are offering bonuses, training and development, and other rewards to workers who stay. “Companies are customizing and focusing rewards to retain top performers or skill sets in short supply,” says Lowman.
In addition to salary budgets and hiring plans, the survey also took the pulse of firms’ return-to-office policies. Among the major findings:
· 27% of companies now require employees back in the office full-time.
· The majority of hybrid policies—59%—require employees to be in the office two to three days per week.
· One-quarter of employees have had a positive reaction to returning to the office, while 3% have had a negative reaction. The rest have had a mixed experience.