Fewer employers planning base pay improvements in 2023

Still troubled about the current economic status, a large number of employers are now thinking twice about increasing workers’ wages.

Fifteen per cent of employers in three countries are unsure whether to give base pay increases in 2023 — five times more than the three per cent that shared that sentiment in 2022, reports Payscale.

And 80 per cent plan to give base pay improvements, down from 87 per cent last year.

“This is a reflection of last year’s white-hot labour market cooling, the risk of a recession increasing, and organizations reflecting that perhaps they spent too much on pay in 2021 and 2022 to compete for talent,” says Payscale.

Only a third (33 per cent) of Canadians are feeling positive about their financial situation, reports The Co-operators Group Limited, and 45 per cent are worried their income won't keep pace with their basic expenses this year.

Pay increases

How much will that base pay increase be, exactly? Higher than it had been in the past for many employers, finds Payscale’s survey of nearly 5,000 employers headquartered in the U.S., Canada, Europe, the Middle East and Africa, conducted between October and December 2022.

This year, 56 per cent plan to give base pay increases over three per cent — up from 53 per cent in 2022, 36 per cent in 2021 and 26 per cent in 2020.

Specifically:

• 26 per cent of companies plan a base pay increase of four to five per cent
• 19 per cent plan an increase of three per cent
• 12 per cent are planning a raise between 3.50 per cent and 3.99 per cent
• 11 per cent plan to give a base pay increase of more than five per cent.

Back in December, a Normandin Beaudry survey predicted average salary increase budgets would jump 4.7% for Canada, excluding freezes.

Factors

Coming up with the exact figure to give as a base wage increase is no easy task. This year, employers focused on the following factors:

• performance (72 per cent)
• market adjustment/talent competition (67 per cent)
• inflation/cost-of-living (54 per cent)
• internal pay equity (44 per cent)
• hot skills (27 per cent)
• minimum wage increases (18 per cent)
• tenure (19 per cent)
• preparations for pay transparency (18 per cent)

“There is a lot that goes into determining base pay increases, and that has never been truer than in 2022 when inflation was through the roof, pay compression seemed to be impacting nearly every employee, and pay transparency legislation was demanding greater commitment to pay equity,” says Payscale in its 2023 Compensation Best Practices Report.

“Although base pay increases are typically called ‘merit increases,’ the average is usually tied more closely to the economy than to performance.”

When it comes to biggest challenges right now for staffing, recruitment comes out on top (54 per cent) for Canadian employers. But pay increase requests (46 per cent) and employee retention (37 per cent) are also top of mind, finds a recent survey.