If you’re expecting your 2023 raise to outpace the one you received last year, you’re probably in for disappointment.
Thanks to the persistently high number of open jobs and massive worker turnover, more organizations gave higher-than-normal raises to their employees in 2022. While those boosts overall didn't keep up with high inflation levels, actual wage growth for private employees grew by an average of 5.3% at the end of last year.
“Companies were playing catch-up last year,” says Lexi Clarke, Payscale’s vice president of people. “The rising inflation, the hot labor market, all those internal inequities—there was a real kind of push to correct, especially as those pay transparency laws were implemented.”
But if last year was about playing catch-up, 2023 is more about staying the course. Amid economic uncertainty and the high-interest-rate environment starting to grind on businesses, most employers plan to take a more conservative approach to pay bumps this year.
About 80% of employers plan to give their workers some kind of raise in 2023—down from 2022 levels, according to Payscale’s 2023 Compensation Best Practices Report. About 15% of the 5,000 compensation professionals, human resources leaders, and business executives surveyed by Payscale reported they were still unsure if they would offer raises.
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“Moving forward, as inflation starts to ease, as the job market cools a little bit…we'll start to see those raises really stabilize from last year's payoffs, as companies become a little bit more cautious with the uncertainty around that economic outlook,” Clarke says.
Of the organizations that are planning to give raises, about 56% of employers plan to provide a base pay increase over 3% this year—and that's actually up slightly from 2022. But even workers at these companies shouldn’t expect big raises. The average base pay increase in 2023 will be between 4% to 5%, whereas in 2022 more raises were above that 5% number, Clarke says.
Workers likely will see raises more frequently, though
Yet, even as employers are pulling back on the bigger pay incentives, companies are still very focused on retaining workers—especially given that there are still 11 million open jobs as of December 2022 and just over 4 million workers quitting on a monthly basis. That’s perhaps one of the biggest forces behind a growing trend Payscale is seeing: Employers are increasing the frequency of raises. So in 2023, more Americans are likely to experience smaller, more frequent pay bumps throughout the year beyond the traditional performance and compensation review period.
“Organizations are increasing the rate in which they give pay increases, as they discovered that the annual pay increase might be too infrequent to retain that talent,” Clarke says.
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Payscale’s data shows that the amount of employers planning to give formal pay increases at least twice a year is set to more than double from 2022. Nearly nine out of 10 companies (86%) report they'll give raises that are out of cycle in 2023.
But don’t be fooled: This is more of a retention play and not really tied to trying to ensure wages keep up with inflation. “What we see employers responding to is really that cost of labor, and not the cost of living,” Clarke says. “Employers aren't making decisions around the final budget or comp recommendations solely based on the amount of inflation.”
