Compensation budgets to rise slightly, but won't keep pace with inflation, Mercer says

Dive Brief:

Employers' compensation budgets are set to rise 3.3% for merit budgets and 3.5% for total budgets in 2022, a survey by HR consulting firm Mercer found — a slight increase from the 2.8% merit and 3% total increases that went into effect in 2021. The increases do not rise to the level of inflation, however, which was at 6.2% for the year at the end of October.
One-time cash payout incentives will rise more significantly; 1 in 4 employers said their overall bonus pool would be more than 10% higher than last year. Around half of employers said their overall bonus budget would not change more than 10% in either direction, and 7% said it would be more than 10% lower than last year.
While most employers are not changing their typical approach, some have changed their plans in the wake of inflation and the Great Resignation. The percentage of employers providing increases of 3.5% or higher nearly doubled between Mercer's August and November projections, from 13% to 27%.

Dive Insight:

With high levels of inflation and demand for labor still up, the question of whether employers planned to adjust compensation to meet employee demand has been up in the air.

The Great Resignation has been driven by a number of factors, including burnout, career changes and a desire for greater flexibility. Pay may not be the primary driver, but it could be an intensifier: An Oct. 20 study from the Society for Human Resource Management showed that among workers who remained at their jobs, 52% took on more work and responsibilities and 55% wondered whether they were underpaid.

In the same study, those who had not yet resigned but were job searching cited "better compensation" as their top reason for doing so (53%). In contrast, employers did not list compensation among their top three guesses for why workers were job searching, suggesting a disconnect between employers and workers on the issue.

Not all employers are responding conservatively with respect compensation changes, however. Small businesses pushed up wages at a 4.1% annual rate in November, according to an index of payroll data from 350,000 companies. Many jobs in the retail and service industries, which have been particularly hard-hit by the labor shortage, have hiked salaries and added new benefits to attract workers.