We've shared the 2023 Compensation Trends. Find them here.
Wages are expected to rise by nearly 4% in 2022, according to The Conference Board’s Salary Increase Budget Survey. This amounts to the biggest wage-cost hike since 2008. According to the report, there are likely two primary reasons for these salary budget increases:
- New-hire wages (45% of the employers polled said new hires’ wages will be a key driver)
- Inflation (39% cited inflation)
But is a higher salary alone the answer to curbing labor shortages that may continue to plague businesses this year? A recent ManpowerGroup survey shows that around 70% of employers globally are having a hard time filling open positions, representing a 15-year high. And data from the National Federation of Independent Business (NFIB) indicates unfilled job openings are at a 48-year high of 22% for small employers whose top operating cost is labor.
Snapshot of 2022 compensation offerings
Research by Ceridian signals wages may not be the single driving factor for winning the race for talent this year. According to its 2022 Pulse on Talent survey, 61% of the roughly 6,800 employees polled globally are flight risks. Close to 40% said they would leave their current employer for the right opportunity. And more than 20% are already looking for a new job.
While salary is a top motivator, good salaries alone aren’t likely to cut retention rate drops, according to Ceridian’s findings.
Ceridian concluded that burnout attributed to higher workloads, mental health challenges, and insufficient compensation are all key drivers for employees seeking new opportunities. While 46% of respondents said they want a new job with a better compensation and benefits package, 33% said they desire more flexibility, including remote work options.
Other reasons employees are leaving their current employers (from most to least common) are:
- Lack of growth opportunities
- Desire for a career change
- Misalignment between their and their company’s values
- Poor relationships with managers
- Lack of job security
- Not liking their work
- Performing work that doesn’t align with their skills
- Pandemic-era pay cuts
- Disapproval of their organization’s handling of the pandemic
- Reduced hours during the pandemic
- Poor relationships with coworkers
What else do employees want in 2022?
The compensation software provider Beqom recently released a report on what employees want when it comes to pay and benefits. Here’s a quick rundown of the trends:
- Better pay transparency in job posts — Of the employees polled, 61% said they would be more likely to apply for work with salary information in the job advertisement.
- Remote work options — A staggering 80% of workers said the option to work remotely is expected and is no longer a nice to have. And 65% said they’d take a pay cut to work from home.
- Flexible hours — More than 80% said they expect flexible hours from their employers, and 77% said a lower salary would be acceptable in exchange for this type of flexibility.
- Safety and activism — More than 75% of employees said an organization’s response to COVID-19 has factored into whether they’ve applied for and accepted a job. Additionally, 66% said they’ve researched pre-pandemic corporate social responsibility efforts to evaluate whether an organization is a good fit.
- Paid leave — A majority of the employees polled (70%) said paid leave is an important factor that contributes to whether they accept a job offer.
The bottom line: If benefits are lacking, offering a competitive salary might not be enough to snag a desirable candidate.
What you can do
A recent article published by the Society for Human Resource Management (SHRM) posits that employers may be in for a bumpy ride in 2022. Korn Ferry Senior Client Partner Tom McMullen told SHRM that given labor shortages, employers should focus on what they can do to keep their current employees.
McMullen recommends that employers consider:
- Making counteroffers to persuade employees to stay
- Promoting high-potential employees
- Providing signing, retention, and referral bonuses
The SHRM article also offered a few other ways to address talent shortages:
- Allocate compensation budgets to hard-to-fill (and hard-to-retain) roles, which may include frontline hourly positions
- Give hiring managers more authority to go high on compensation when making a job offer
- Conduct salary surveys and market pricing analysis for roles in local areas where organizations just aren’t connecting with the talent they need
Wage equality and union considerations
For organizations in danger of labor shortages, there are some other factors to consider. A recent study by the University of California, Berkeley and Brandeis University looked at how low unionization rates may contribute to inequality in wages.
The study found that many large, private employers have raised minimum wages due to public pressure, which in turn has had a cascading effect on pay at other organizations.
For instance, across-the-board minimum wage hikes at Amazon, Walmart, Target, and Costco have led to wage increases for low-wage jobs at other organizations. The researchers noted that when Amazon instituted a 10% average increase in pay, close to 3% of employers in the same commuting zone raised their hourly wages as well, so they could better compete for talent.
Another factor to consider is whether the workplace is unionized. The public policy nonprofit Brookings recently published an article on why unions may be a way to help curb labor shortages. Unionized workers earn 11% more than nonunion employees, according to the Economic Policy Institute, and unions can help workers obtain paid sick leave and better job security, too, Brookings notes.
With better pay and benefits, unionized employees may have more reason to stay once they’re hired, which may help ease organizations’ burdens by reducing the cost to replace workers when they leave.
Brookings says that between hiring costs and lost productivity, the average cost to replace one low-wage worker is about one-fifth their yearly pay.
By way of example, Brookings says UPS, which is unionized, has increased its operating profit by 20% year over year. On the other hand, nonunionized workplaces like Amazon and FedEx, which have experienced labor shortages, have had diminished profits. Brookings reports FedEx’s labor shortage has cost the company about a half-billion dollars.
Employee experience matters, too
The COVID-19 pandemic and The Great Resignation have led to a “reset in expectations as employee needs rapidly evolve,” said Steve Knox, Ceridian’s VP of Global Talent Acquisition. His advice is to focus on employee experience, which includes the way people are paid and how they work. Addressing these factors can set employers apart from their competition, he notes.
So, while increasing wages is certainly a way to attract and retain talent, there are other factors that come into play. Taking a close look at how your organization stacks up can help put you in a better position to manage any remaining labor shortages 2022 may bring.