Tag Archive for: compensation trends

2022 Salary Increase Budgets

Will salary increase budgets rise or fall in 2022? Although employment has not yet returned to pre-pandemic levels, most executives are optimistic the economic recovery will continue, a sentiment that paves the way for higher wages.

In fact, a recent poll by Chief Executive shows CEOs anticipate both revenue growth (79%) and profit growth (68%) over the next 12 months despite setbacks that may have occurred for some in 2021. At the same time, there is growing uncertainty on many fronts. Looking ahead, the C-Suite is concerned about labor costs and shortages (63%); the overall economy (50%); workplace safety and ongoing Covid mandates and restrictions (48%); and supply chain issues (40%).

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Against this backdrop, companies are facing one of the tightest labor markets in memory as they determine how to adjust 2022 salary increase budgets to attract and retain top talent.

To get a sense of what management teams are planning for salaries and wages in 2022, we have gathered compensation survey information from a variety of consulting sources including:

WorldatWork

WorldatWork’s 2021-2022 Salary Budget Survey reported that salary increase budgets rose to 3.0% in 2021. In addition, zero increase budgets dropped by half in most employee groups from 2020 levels, which were ten times higher than in 2019.

Not surprisingly, survey participants salary increase budgets this year varied across industries as the pandemic had varying impacts. For example, Mining, Quarrying, and Oil and Gas, saw salary increase budgets falling from 3.1% last year to 2.3% after rising for several years. On the other hand, Educational Services saw a large increase from 1.5% in 2020 to 2.5% in 2021. Salary increases also varied between companies in the same industry.

The survey projects median salary increase budgets will be 3.0% in 2022, while average 2022 salary budgets will be 3.3%. Survey participants predicted no significant differences between nonexempt employees, exempt employees, or executives.

According to survey participants and consistent with previous years, salary increase budgets continue to be greater in smaller companies, resulting in the average being higher than the median.

According to survey participants and consistent with previous years, salary increase budgets continue to be greater in smaller companies, resulting in the average being higher than the median.

Willis Watson Wyatt

According to the Willis Watson Wyatt General Industry Salary Budget Survey, respondents report only 3.0% intend to give no raises in 2022. This is a decrease from 8.0% earlier in 2021. The survey reports projected salary increases of 3.0% for executives, management, professional, and support staff for 2022. This is up from the 2.7% average increases companies gave their staff in 2021. Production and manual labor employees are slated for 2.8% increases, a slight rise from the 2.5% paid this year.

High-tech and pharmaceutical companies project the largest salary budget increases at 3.1%. Next are health care, media, and financial services organizations with 3.0%. Oil and gas companies, leisure and hospitality companies are budgeting salary increases of 2.4%. Retail organizations predict increases of 2.9% next year.

The survey found that top performers received larger pay increases than average-rated employees. Those receiving the highest performance rating received an average increase of 4.5%, 73% higher than the 2.6% granted to average evaluated performers. Note that Lappley & Associates has long advocated that top performers be recognized with increases double those of average rated performers.

Conference Board

According to the Conference Board, median total 2021 salary budget increases for 2021 are 3.0%, on par with the previous 10 years. The projections for 2022 are also at 3.0% and are expected to hold steady across employment categories.

Photo courtesy of Pixabay

National Association of Manufacturers (NAM)

In a survey taken in August of manufacturers conducted by the National Association of Manufacturers (NAM), participants said they plan to increase wages and full-time employment by 3.5% and 3.8%, respectively, in the next 12 months. NAM reports that manufacturers are continuing to invest in workers and capital at paces that indicate an extremely positive industry outlook for 2022.

Like other industries, manufacturers are facing workforce shortages along with supply chain disruptions, rising cost pressures, and increasing coronavirus cases.

Our Thoughts

It is interesting to note that salary budget increases for next year are consistent by survey source, although they seem to be getting larger as the year progresses. Furthermore, the issues of retention, upskilling and recruiting remain top-of-mind with management executives as they consider plans for next year. With that in mind, here are our predictions:

First, small to medium-sized companies (SME) may have a competitive hiring advantage with more flexibility, the absence of vaccine mandates, and a smaller regulatory burden. We predict they will adopt salary increase budgets of 3.3% to 4.0% in 2022 while large organizations will be closer to 3.0%. The difference between SME and large organization approaches reflects a pattern over the past several years. Further, more recent surveys are pushing expected increases higher.

Second, despite salary budget increases in 2022 exceeding recent years, there will be growing pressure from employees for larger pay increases. This will add to increased turnover risk as employees seek higher compensation. Although it may be temporary, inflation is real and having an impact on American households. For example, federal sources report wholesale prices climbed 8.3% from August 2020 to August 2021, while retail prices rose 5.3% over the same period. In addition, Price Waterhouse Cooper’s Health Research Institute is projecting a 6.5% medical cost trend in 2022, slightly lower than the 7.0% medical cost trend in 2021 and slightly higher than it was between 2016 and 2020.

Third, companies should examine their pay competitiveness levels using salary surveys that robustly test business type, along with competitors for people based on geography and other factors. Then evaluate how close your organization can come to meeting compensation strategy competitiveness goals based on available funding. At Lappley & Associates we have access to a large number of surveys making such an evaluation possible.

Let us Connect

If you liked this newsletter, please pass it along to colleagues who would be interested. And reach out if you would like to discuss further at nlappley@lappley.com or (847) 921-2812.

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Addressing Pay Equity

Pay equity is a topic that isn’t going away. Rather, the spotlight is only getting brighter.

This makes understanding possible pay gaps between the men and women in your workplace and adopting proactive approaches to remedy pay inequities more important than ever. For instance, according to the American Association of University Women, 42 states as well as Puerto Rico and Washington D.C. proposed new pay equity legislation last year. Not all the measures passed, but enough did making it challenging for organizations operating in multiple markets to address the issue of pay equity in a comprehensive way.

A growing number of states and local governments have made it illegal for employers to ask candidates for their salary history. The rationale for the law is this: since females have historically been paid less than males, platforming a new salary over a low salary only perpetuates the difference. In response to this trend, a recent WorldatWork survey finds that 37% of companies have a nationwide ban on asking potential candidates about their past pay.

Additional legislative approaches to tackling pay equity include new laws promoting more pay transparency; others give employers protections for making “reasonable progress” toward pay equity. Clearly, the shifting landscape and impact of gender wage gap laws raise compliance and performance concerns for companies and their compensation policies.

What is Gender Pay Equity?

When we talk about gender pay equity, this often is confused with equal pay or these terms are treated interchangeably. However, there is a difference.

The gender pay gap is a broad measure between the aggregate pay for women and men across the organization. It is expressed as a percentage of men’s earnings.

Equal pay requires women and men doing the same or a substantially similar job to receive the same compensation and benefits. In other words, equal pay for equal work.

It is important for businesses to understand the distinction. Why? Both areas should be examined to better understand pay differentials within your organization and the factors at play impacting your talent management programs.

Understanding Gender Pay Equity

Several studies in recent years have looked at pay gaps to better understand the causes and impacts.

In a new article, “More Than a Pay Gap,” management consulting firm Korn Ferry examined its compensation data base for organization-wide pay differences within 110 countries. What they found is that the gap in the United States narrows considerably the more specific the comparison becomes. While women on average earn almost 18% less than men, the gap between a man and woman working in the same job level for the same organization in the same function is typically only .9%.

Korn Ferry researchers have concluded the reason women are paid less than men is not necessarily the result of unfair pay practices. Indeed, this may be the case in some organizations (after all, averages mask actual comparisons). Rather, the gap in pay is deduced to be the result of fewer women working in higher paying industries or leadership functions.

As the Korn Ferry study reveals, the solution to the organization-wide gender pay gap represents a complex and systematic challenge. We will focus on how to meet the challenge in a future issue of Compensation Alert. Meanwhile, companies have immediate opportunities to evaluate whether your organization is complying with equal pay statutes.

Conducting a Pay Equity Analysis

Inequitable pay practices can pose immediate risks to your business – including reputational risk. To help uncover possible issues driving any pay differentials within your organization, conducting a pay equity analysis is recommended. Following is a step-by-step process overview:

It may be prudent to consult with a lawyer, as audits of this type are often protected by lawyer-client privilege.

  • Identify the equal pay practices you want to investigate.
  • Gather data on employees grouped by comparable worth. Jobs should be examined regardless of job title, with the focus on work performed, the manner in which the work is performed, and the skills required for the job.
  • Determine what drives pay most, whether desirable factors such as performance and/or level or undesirable factors such as race, gender or age are involved.
  • Beyond the job-based analysis, the study should look function-by-function, manager-by-manager, and location-by-location to see if any equity trends emerge. Any pay gaps can then be closed.
  • Following the job-based analysis, it is important to dig into the causes of those gaps. For instance, salary structure and other compensation tools need examining.
  • Finally, leaders must be committed to change if undesirable factors influencing pay have been discovered. Change can only happen if commitment exists at all levels to ensure fairness, consistent communications, and organization-wide management practices.

Conclusion

The type of pay analysis described above will need to use comprehensive compensation market data, review and likely overhaul compensation administration guidelines, and update job grading systems. But smart organizations can turn it into an advantage. How? By looking beyond current law to build proactive policies and practices promoting gender equality (and diversity of employees) and embedding these values into the company culture.

Further, experts say that organizations that manage pay equity well and have diverse, inclusive cultures post higher returns and have more trust in leadership, greater employee engagement, and less turnover. Organizations that fail to manage pay equity well are subject to the inverse consequences, plus increased risk of litigation.

Let’s Connect

If you enjoyed this or other articles I have written, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me or call.

Contact me at (847) 921-2812 or nlappley@lappley.com.

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[Salesforce Alert Sept. 2018] The Millennial Effect on Sales Compensation

A lot has been written about the interests, attitudes, and behaviors of Millennials (those born between 1981 and 1996). Among the facts that have been reported, primarily by the Gallup organization, these stand out:

  • Millennials will account for 50 percent of the US workforce by the year 2020.
  • Only 50 percent plan to be with their current company one year from now.
  • Only 29 percent are engaged at work.
  • At the 2016 Sales Compensation Conference, research done by Michael Ahearne, a professor at the University of Houston, suggests that Millennial salespeople are more interested in a leveraged compensation plan than their traditional peers

Based on our research and experience, we believe the following should guide the treatment of Millennials:

  • Millennials want to grow in a job that fits them.
  • They enjoy more periodic feedback than other generations.
  • They have a firm desire to be considered for a “fast track” promotion if their performance warrants.
  • Millennial salespeople want to be rewarded for their results.

All of this signals the importance of rethinking how to recognize and reward superior performance of an increasing population of Millennials in the sales organization.

So, what are some of the ways to consider?

Possible Approaches

Following are four possible approaches. Understandably, careful analysis will need to be undertaken to ensure any new approach or program can be aligned with a company’s overall culture and reward strategies.

  1. Career Pathing. To better retain Millennials offer individual career growth paths that spell out how a salesperson of any age can advance in the organization. According to reports, Credit Suisse, the international financial services company, did just that and believes that its 1% increase in retention can save $75 to $100 million a year.
  2. Outstanding Achievement Award. For all salespeople who clearly demonstrate stellar achievement, for example candidates for “The President’s Club”, offer them a new, end-of-year special bonus that can be used to support their outside-work deep interest. Examples could be a local community group (Boys & Girls Club) or the local alumni chapter of the college they attended.
  3. Enhanced Engagement Opportunities. To better engage Millennial salespeople, offer all employees some new or enhanced opportunities to participate with company executives. One example is providing structured networking with senior company executives (Sales VP, CFO, CMO, VP Operations, VP HR). Video chats, such as an “Ask the CEO” forum, might also be considered.
  4. More leverage in the Compensation Plan. Move, for example, from an 80/20 compensation plan for sales people to a 70/30 plan.

Survey Your Salesforce

Not sure your Sales Compensation Plan or talent management programs need a major change to accommodate Millennial salespeople?

Consider evaluating where you stand today by conducting a Salesforce Survey with the entire salesforce asking for the recipient’s age category and opinions on a number of topics, e.g., career pathing, training, current compensation pros and cons, and incentive leverage. The survey results can offer a baseline snapshot of today’s situation. From there, discussions can be started to lay a forward path.

If you would like to discuss this topic or your other salesforce compensation needs further, please contact Tim Weizer at tim@salescne.com or 312-479-6411 or Neil at nlappley@lappley.com. Also feel free to share this article with anyone who might be interested.

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