Pulling Back on Wages—At Least For Most

Facing inflation and high benefit costs, firms set sights on slicing wage hikes—except for top talent. 

It’s a neat trick if you can pull it off, experts say. Companies are continuing to get dead serious about pulling back on wages—while still trying hard to keep and attract top performers. 

According to the most recent US stats, wages and salaries grew 5.2% through September, an increase of more than half a percentage point from last year. Growth was running even higher earlier in the year but started coming down in the summer when companies began instituting hiring freezes and layoffs. Next year will be more of the same. A recent Korn Ferry survey shows that companies are planning to reduce spending on wages even more, forecasting salary increases of only 4.0% to 4.5% for 2023. 

Ron Seifert, leader of the North America Workforce Rewards and Benefits practice for Korn Ferry, says leaders are struggling to balance various talent needs. A recent Conference Board survey found leaders are as concerned about attracting and retaining talent as they are about a recession in 2023. Those two concerns are why companies are “exercising far more discipline in how they spend on people,” says Seifert.

The end result is a dual-focused comp plan, with companies paying more for top talent and key roles and moderating aggregate labor costs via hiring freezes and potential layoffs, says Tom McMullen, a senior client partner in Korn Ferry’s ESG and Inclusive Rewards practices. “They want to trim costs to prepare for a likely recession but protect key players and roles,” he says. 

Firms are, of course, feeling pressures from many corners to cut labor costs, which rose so high in some cases during the post-pandemic boom. But along with rising inflation, skyrocketing costs in healthcare benefits are creating a big budget squeeze. Spending on employee benefits is up 5.0% through September, an increase of 2.4% compared to 2021, with nearly all of that increase attributable to rising healthcare premiums. That’s because workers, after staying away from doctors and hospitals unless absolutely necessary during the pandemic, are now returning for elective procedures or other services, says Marc Hallee, a senior client partner in the Healthcare practice at Korn Ferry.

As companies focus more on how they are spending money on talent, not every department and not every position will be treated equally, says Deepali Vyas, global head of the FinTech, Payments, and Crypto practice at Korn Ferry. For instance, she says firms in financial services, tech, and other industries whose leaders have been calling for a return-to-office will likely look much harder at remote positions as they map out their budgets and critical strategic initiatives for 2023. “They are going to take stock of remote workers in particular and ensure they are proving their worth,” says Vyas.