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Employers Weigh Inflation's Impact on Annual Pay Raises, SHRM Survey Shows

Most are worried over how inflation, hitting 9.1% year over year, affects employees

A woman is holding a bag of vegetables in front of her car.

This article has been updated.

Most HR professionals are concerned about the effects of inflation on their organizations, including how inflation will affect annual pay raises for the remainder of 2022, according to new findings from SHRM Research.

Overall, 73 percent of 1,150 HR professionals surveyed from May 10 to May 24, 2022, indicated that inflation was a concern at their organization, while only 8 percent said it was not a concern.

Survey participants were randomly drawn from SHRM's membership, and results were weighted to be nationally representative of HR professionals in the U.S.

"Employers recognize that inflation can have a major impact on the well-being of their team," said Johnny C. Taylor, Jr., SHRM-SCP, SHRM president and chief executive officer. "Many employers are re-examining their strategy when it comes to both pay and the overall employee experience. While many are still unsure about what will happen with pay, over half of those surveyed who've made a decision state that inflation will be factored into employee annual pay raises."

Pay Raises Trail Rising Prices

The annual U.S. inflation rate hit 9.1 percent in June, a new 41-year high, the U.S. Department of Labor reported on July 13. Salary and wage increases at U.S. companies, however, have not kept pace with rising prices:

  • Average hourly wage growth was 5.1 percent annualized in June, down just a tad from 5.2 percent year over year in May, the Bureau of Labor Statistics (BLS) reported on July 8 in its monthly jobs report.
  • Average base pay salary growth increased by an average of 4.8 percent year over year in the second quarter of 2022, according to a survey of more than 300 large employers conducted in May by Pearl Meyer, a compensation advisory firm.

Inflation began rising rapidly in 2021.

With pay raises trailing inflation, the buying power of workers' take-home pay has been shrinking despite historically tight labor conditions. Real (inflation-adjusted) average hourly earnings fell 3.6 percent, seasonally adjusted, from June 2021 to June 2022, the BLS separately reported.

"The decline in real average hourly earnings at this point is terrible, the fastest pace of decline in 40 years," tweeted Jason Furman, who chaired former President Barack Obama's Council of Economic Advisers.

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.

HR's Pay and Inflation Concerns

HR professionals responding to SHRM's survey said the effects of rising costs on the lives of their employees was their greatest inflation-related concern. Among the roughly 70 percent of respondents who said they were aware of their organizations' plans for annual pay raises, 63 percent reported that inflation was being considered or accounted for in annual pay raises this year.

That figure includes nearly 27 percent who said inflation is a standard part of their annual cost-of-living pay adjustments.

An organization's size influenced whether it was more likely to consider inflation when setting annual pay raises. Among HR respondents who were aware of their organization's pay raise plans, those who said that inflation is being considered or accounted for in annual pay raises included:

  • 76 percent at small organizations (fewer than 100 employees), including 27 percent who said cost-of-living changes are a standard part of their annual pay adjustments.
  • 65 percent at medium organizations (100 to 499 employees), including 29 percent who make annual cost-of-living pay adjustments.
  • 54 percent at large organizations (500 or more employees), including 27 percent who make annual cost-of-living pay adjustments.

Other Findings

Among those in SHRM's survey who indicated inflation was a concern at their organizations, 87 percent said their "highest concern" was how inflation would affect the lives of employees, followed by the effects on customers and consumers (70 percent) and on suppliers and wholesale costs (61 percent).

Industries where survey participants were the most concerned about inflation included agriculture (97 percent of respondents), wholesale trade (95 percent), utilities and energy (82 percent), and manufacturing (82 percent).

More Midyear Raises

Employers recognize that higher pay is needed to keep up with their rivals as workers pay more for gasoline, groceries and other daily living expenses, The Wall Street Journal recently reported. As a result, more organizations are offering midyear raises and bonuses to retain employees. For example:

  • PricewaterhouseCoopers LLP raised pay 5 percent in January and said it will again hand out raises in July. The accounting and advisory firm said it no longer reviews salary data once a year but instead regularly looks at a number of data points, including salary expectations of new hires, and uses that information to react quickly and make compensation changes if needed.
  • T. Rowe Price Group gave about 85 percent of its workforce a special 4 percent raise effective July 1. The financial services firm employs more than 7,500 full-time staffers.
  • Exxon Mobil Corp. gave U.S. employees a one-time payment in June equivalent to 3 percent of their salaries. The bonus payments came outside of the company's typical annual review cycle.

Overall, about one-third of large U.S. employers are considering or planning midyear raises, according to Pearl Meyer's research.

An April/May survey by consultancy WTW found that less than half of companies (45 percent) are sticking with the pay budgets they set at the start of the year, and more than one-third (36 percent) have already increased or plan to increase how often they raise salaries. Among those respondents, the vast majority have or will adjust salaries twice per year. The global survey included responds from 1,430 U.S. organizations.

"Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive," said Hatti Johansson, research director for rewards data intelligence at WTW. 

Related SHRM Articles:

High Inflation Means Resetting Pay Strategies, All Things Work, June 2022

How to Avoid Unintended Consequences When Raising Pay, HR Magazine, June 2022

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

Salary Budget Growth of 5% Most Common Increase in New Survey, SHRM Online, April 2022

Related SHRM Resources:

SHRM Express Request: Salary Increase Projections 2022

SHRM Express Request: Salary Increases 2023: Survey Participation Opportunities

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


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