Despite Economic Concerns, Employees Have High Expectations for Pay Increases

​Concerns about a potential recession are causing some once-generous employers to tighten their purse strings as they plan for layoffs, cut some employee perks and turn to smaller raises this year.

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But that's no matter to employees. In fact, workers' expectations for both pay and comprehensive benefits are high as they reel from months of persistent inflation, with employees expecting a bigger payday from their employers. And if they don't get it, employees may be ready to walk, new research indicates.

The overwhelming majority of workers (83 percent) expect a raise in 2023, and, on average, they foresee an 8.3 percent uplift, according to new data out from the ADP Research Institute's annual global survey of more than 32,000 workers. Some employees are expecting even more: Globally, 10 percent of workers expect a salary increase of more than 15 percent in the next 12 months, and 18 percent expect an increase between 10 percent and 12 percent in the next 12 months. Meanwhile, 50 percent of U.S. workers say they're underpaid.

"Heightened employee expectations around pay increases is likely in part driven by the global macroeconomic environment we're currently facing," said Nela Richardson, ADP's chief economist. "Workers everywhere are trying to manage their personal finances through high inflation and the high costs of living. Whereas U.S. workers were once expecting pay raises between 2 percent and 3 percent, in line with the pace of inflation at the time, they're now expecting pay growth over 6 percent, which is in line with current inflation levels."

Indeed, the ADP findings come as persistently high inflation has taken hold of workers' financial well-being. Although inflation has dipped in recent months—the latest Consumer Price Index (CPI) found that costs for all items rose 5 percent for the 12 months ending in March, the smallest 12-month increase since May 2021—months of high living costs have taken their toll. As a result, financial stress has soared, and more employees are saving less, dipping into their retirement accounts and living paycheck to paycheck.

When asked to name the most important factor in a job, 61 percent of employees pointed to salary, followed by job security (43 percent), career progression (40 percent) and enjoyment of their work (37 percent), according to ADP Research Institute's People at Work 2023: A Global Workforce View. The report also found that 62 percent of workers believe they will get a pay raise in the next 12 months from their current employer, while 41 percent believe they will get a bonus during the same time from their current employer.

Heightened pay expectations, though, are not in line with the pay changes that employers have given: In the last 12 months, just 3 percent of worldwide workers received a pay increase of over 15 percent, ADP found. Meanwhile, Seattle-based compensation software firm Payscale similarly noted earlier this year that raises might be on a decline, given economic fears.

Factors like moderating inflation and the stabilizing market—the job market is still competitive and employee-driven but appears to be tapering from its red-hot status last year—may eventually help reset workers' expectations on pay, Richardson noted. But in the meantime, worker confidence may result in another problem for employers: Employees may leave for other jobs if they don't get a generous pay bump.

"While there is worker confidence that their current employers will in fact raise their pay, many workers also believe they'll be able to get that pay raise elsewhere if not from their current employer," Richardson said. As many as 6 in 10 workers said they would consider relocating for better opportunities.

Rising Employee Expectations

Aside from higher pay, employees also are looking for flexibility in their hours and the locations where they work, mental health-boosting initiatives, and financial wellness help. And if they can't get more pay from their employers, there are other perks that would help retain them, they said, including additional paid leave (cited by 39 percent of workers), shorter workweeks (32 percent), grocery or shopping vouchers (28 percent), and a one-off payment to help with the high cost of living (26 percent).

ADP's survey isn't the only research to find that employee expectations have jumped due to a confluence of factors, from high inflation to COVID-19. MetLife's annual employee benefits study, released in March, found that heightened expectations are increasing employees' dissatisfaction with their benefits.

"Since the start of the pandemic, employee demands have been on a sharp incline," Missy Plohr-Memming, senior vice president for national accounts sales and group benefits at MetLife, recently told SHRM Online, explaining that MetLife research shows the average number of employee "must-have" benefits increased from 6.6 in 2020 (pre-pandemic) to 8.3 in 2023. Those benefits include stalwarts such as health insurance, paid leave and retirement plans, but also newer options like financial wellness, employee assistance programs and stress management.

"While employers have made efforts to expand their benefits offerings, they simply have not been able to meet employees' evolving expectations quickly enough," Plohr-Memming said. MetLife research proves as much: 61 percent of employees say they are interested in benefits that their employer does not currently offer, an increase of 3 percentage points from 2022.

HR executives say they are aware that employees want more from their employers. Thomson Reuters Chief People Officer Mary Alice Vuicic, for instance, said the media giant's employees have been asking for enhanced benefits, better work/life balance and more flexibility.

As workers remain consistent in wanting increased pay, flexibility and a positive workplace culture, Richardson said the onus is on employers to meet workers' needs while also paying attention to challenges in the workplace.

"Forward-thinking leaders will need to find ways to help safeguard workers' financial health while bolstering their professional development," she said.