Will 2022 Break Compensation Budgets?
Going into 2022, workers' pay is all about supply and demand—and inflation.
With more job openings than people looking for work and inflation at the highest level in two decades, topping 6% year-over-year in October, employers face pressure to increase salaries and hourly wages.
In this environment, pay is driving workers' decisions to change jobs, according to a 2021 survey of 1,404 workers by software company Ceridian, showing that surveyed workers:
Would consider leaving their current job for the right opportunity (36%)
Are actively looking for a new job (24%)
Among the top drivers of this decision were workers' desire for:
Higher salary and better benefits (49%)
Greater flexibility, such as remote work and flexible hours (33%)
Although many HR executives will be glad to see the end of 2021, "the reality is that [these trends] don't have a start or stop date," said Catherine Hartmann, managing director of work and rewards at consultancy Willis Towers Watson. "The pressure points on compensation will continue into 2022."
In this environment, compensation budgets that just a few months ago projected increases of 3% to 3.3% for the year ahead are likely to be revisited and (if company finances are sufficient) revised upward.
This is especially true because the percentage increases expected for 2022 were only slightly higher than the projections in years past when inflation was held in check and employers had access to a greater supply of talent.
Do What You Can
One way employers can keep compensation costs under control is to retain existing employees. To keep current talent, employers can create or fine-tune counteroffer programs; accelerate promotions for high-potential and key talent; and offer signing, retention, and referral bonuses for a wider range of employees.
Pressure on worker pay is not equal for all categories of jobs. Employers can look for ways to shift funds in compensation budgets to jobs that are particularly hard to fill and retain, ranging from front-line hourly positions to science, technology, engineering, and math positions. For example, as more companies seek to manage supply chain and cybersecurity risks, pay for expertise in those areas has been soaring.
Other steps to manage pay structures include:
Developing wider pay ranges for hard-to-fill jobs to give hiring managers greater latitude when making job offers.
Gathering real-time information on the state of the market from internal and external recruiters. For specific jobs, it may be necessary to conduct salary surveys and market pricing analyses more frequently than the usual annual practice.
While working through challenges in the year ahead, hiring managers may need extra support in setting pay levels and dealing with a rapidly changing market.
Fresh thinking could also lead to opportunities to redeploy existing talent. For example, if an employer is having difficulty finding talent for specific positions, it could increase the learning and development budget to give existing employees opportunities to move into a new role or expand their current role by adding and deepening their skills.