There has been a lot of speculation regarding merit increases for 2022. The current labor trends around staff shortages, job changing, fighting for the current talent pool and geographical relocations has certainly put a strain on trying to determine how to structure for this year’s merit increases.
For the first time in over ten years, we are seeing the overall merit increases creep up beyond the normal 3% target we have all been using when setting both merit increase pools and salary adjustments for our employees. Several leading compensation research organizations have made predictions on both the overall salary increase budgets and the merit increases for 2022.
Overall Merit Increases Forecast for 2022 (original predictions):
- Average Merit Increase – 3.23%
- 25th Percentile – 3.00%
- Median – 3.00%
- 75th Percentile – 3.48%
However, these projections were made in October 2021 and since that time, the market for talent has exploded like we have never seen before. These compensation research organizations have adjusted their merit increase forecasts after surveying the marketplace:
Projection of Merit Increase for Balance of 2022:
- 71% project 3% – 3.49%
- 11% project 3.5% – 3.99%
- 10% project 4% – 4.99%
These projections are all over the board, but one thing that we can agree upon is that the 3% merit increases are no more and we are seeing companies use 3.5% for the balance of the year. More companies are raising their starting salaries and providing off-cycle market based raises on a more frequent basis as employer’s react to the labor market trends and try to keep pace with the war for talent.
Additionally, inflation has continued to grow and the consumer price index has risen to 6.2%. The producer price index rose to 9.6%. This is the key leading indicator for the prices that consumers pay. Obviously, this will begin to affect wages since employees won’t be able to purchase goods and services at their current income, as this index continues to rise. This is called a “wage-price spiral”, where higher prices and rising wages feed each other leading to faster increases in both.
For now, it is anyone’s guess where the merit increases will end up. One thing is for sure, the cost of labor is rising and we are all in a fight to attract and retain top talent.
If you haven’t market priced your current positions in a while, now is the time to review your salary structures and job descriptions. KardasLarson has a strong compensation team in place to help you to review your salary ranges, market pricing and reset your compensation strategy moving forward.