Salary Budget Growth of 5% Most Common Increase in New Survey

Merit budgets are increasing to counter tight labor market and inflation

Stephen Miller, CEBS By Stephen Miller, CEBS April 5, 2022
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Salary Budget Growth of 5% Most Common Increase in New Survey

Updated Inflation Statistics

Adding more pressure on employers to raise wages, consumer prices rose 9.1 percent year over year in June 2022, a new 41-year high, the U.S. Bureau of Labor Statistics (BLS) reported in July.

Inflation has grown sharply since late 2021.

Higher inflation means the buying power of workers' take-home pay is shrinking. Real (inflation-adjusted) average hourly earnings fell 3.6 percent, seasonally adjusted, from June 2021 to June 2022, the BLS separately reported in July.

An indication that inflation is likely to remain high was provided by the producer price index (PPI), a key leading indicator for the prices that consumers eventually pay. In July, the BLS announced that the PPI rose 11.3 percent for the 12 months ended in June, up from 10.8 percent for the 12 months ended in May.


A survey of employers by compensation data and analytics firm Salary.com shows that most U.S. organizations (73 percent) are targeting a payroll budget increase of 4 percent or more this year, and a plurality of organizations (43 percent) are growing their salary merit-increase budgets by 5 percent or more.

The survey was conducted from Feb. 25 to March 7 among 1,173 compensation decision-makers, such as HR and compensation managers.

"Companies have increased their merit increases to higher levels than we have seen in many years to combat inflation and tightened labor markets," according to Salary.com's Cost of Living Adjustment Survey Report.


In other survey findings:

  • Nearly 99 percent of respondents said they were concerned about rising inflation rates eroding employee compensation this year.
  • More than half (50.7 percent) have adjusted job-specific salary levels to reflect the tighter labor market for hiring talent, while 44.1 percent said they had updated their salary structure for that reason.

Variable Pay Increases

A quarter of survey respondents (24.5 percent) are awarding more variable pay (bonuses and incentive payments) to offset inflation, and the size of these payouts has increased.

This year, for instance, 52 percent of respondents said variable pay represented 5 percent or more of their payroll, up from 39 percent who said the same last year.

To address labor market demands and inflation:

  • 34 percent adopted or increased sign-on bonuses.
  • More than 18 percent adopted or increased retention bonuses.

Of those that made changes to retention bonuses, however, only a fifth (20.4 percent) said they were experiencing less pressure to retain employees.

[Need real-time, HR-reported compensation reports? Check out the SHRM Compensation Data Center]

Quitting to Earn More Money

Other new research shows the effects of a tighter labor market on employee turnover.

A survey from Pew Research Center of U.S. adults who quit their jobs last year shows that over half of those who are in new jobs said they're being paid more in their new position.

Pew's analysis is based on a Feb. 7-13 survey of 6,627 employed U.S. adults, including 965 who say they left a job by choice last year.

Among those who quit their jobs, the factor they most often gave as a major reason for quitting was comparatively low pay (cited by 37 percent), while another 26 percent said low pay was a secondary reason for quitting.

Lack of advancement opportunities was a major reason for leaving among 33 percent of respondents and a secondary reason for 30 percent. Other cited reasons were feeling disrespected at work, child care issues and not enough flexibility to choose working hours.


"For the most part, workers who quit a job last year and are now employed somewhere else see their current work situation as an improvement over their most recent job," wrote Kim Parker, director of social trends research at Pew Research Center, and Juliana Menasce Horowitz, associate director of research at Pew.

At least half of these workers said that compared with their last job, they are now earning more money (56 percent), have more opportunities for advancement (53 percent), have an easier time balancing work and family responsibilities (53 percent), and have more flexibility to choose when they put in their work hours (50 percent).

Among college graduates who switched jobs, 63 percent said they were now earning more money, compared with 51 percent of job switchers with less education.

Related SHRM Articles:

U.S. Inflation Rate Reaches 8.6% in May, a 40-Year High, SHRM Online, June 2022

As Inflation Hits 8.5%, Workers Expect Bigger Raises, SHRM Online, April 2022

Inflation Continues to Surge, Affecting Wage and Benefits Planning, SHRM Online, March 2022


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