Consider variety of data to inform salary increase decisions
Companies have historically relied heavily on external salary surveys to understand the market and their competitors’ practices. To guide their thinking in the year ahead, however, many HR and compensation professionals tell us they plan to gather additional perspectives.
“Given today’s uncertainty, survey respondents may lack conviction about their survey submissions and, in turn, the surveys’ actual results,” Barnett explains. “Actual salary actions, occurring early in 2023, could vary materially from planned budgets.”
Nonetheless, several regions are planning for higher salary increase budgets in 2023, based on the latest figures from the second edition of Aon’s 2022 Salary Increase and Turnover Study.
In the United States, median salary increase budgets overall are forecasted across industries at 4.6 percent, a modest increase from 4.5 percent paid out in 2022 but much higher than the U.S.’ recent historical average of around 3 percent. In the United Kingdom and Singapore, budgets are forecasted to be 4.5 percent compared to 4 percent last year. In Germany and Australia, budgets are forecasted at 4 percent in 2023 vs. 3.5 percent in 2022.
"The data reflects the continued tight labor market across many parts of the world,” says Ephraim Edelman, partner, Human Capital Solutions, Aon.
However, external data is one part of the story for developing a salary increase strategy in a volatile and uncertain environment. The key is to contextualize salary increase planning surveys with historical analysis and the unique circumstances of your own industry and organization. “Take in different data points — both external and internal — and decide what makes sense for your organization,” says Edelman.
Define salary increases by various factors
While it is critical for businesses to define and adapt pay increases for factors such as different worker types and nature of work, organizations must stay agile as they rethink their pay principles. By making changes in a phased manner to optimize pay effectiveness, businesses can shape their strategies towards long-term drivers of pay and performance.
“Alongside adopting diverse pay frameworks for different working models, companies should define their 2023 salary increases in the context of the competitiveness of their current salary levels and employee value proposition,” explains Rahul Chawla, partner, Human Capital Solutions, Aon. “For instance, many companies are considering a skill-based compensation program as a way to ensure they are maintaining and building future skills in their organization.”
When moving to a skills-based compensation model, employers will need to identify future skills critical to business success, ascertain the value of those skills and reward them appropriately (read more in our article “Closing the Future Skills Gap to Drive Business Success”). Salary increases can be distributed to those who broaden or deepen their current skillset and/or acquire new skills outside of their current scope of work. This will ensure not only personal development for employees but also allow companies to adapt to changes and stay current with the rapid pace of technology.