As employers face the tightest labor market in recent history, how much to raise employee pay is a challenge. Wage gains will not match the current hot inflation because corporations are generating record profits and workers are being pressed to keep up with rising costs.
The Consumer Price Index's inflation reading came in at 6.8%, the highest year-over-year increase since 1982. Projections from employers for next year are only half of the current level of price increases, so the fourth quarter reading could mark an inflation peak.
Over the past decade, employers had it easy. Pay raises have increased between 2% and 3%, but inflation has remained between 1% and 2%.
CNBC received audio and video of employees being told that their raises won't be matched against the current rate of inflation at a meeting with their bosses at tech giant Google.
According to the All America Economic Survey, Covid is the top concern among the public.
According to the survey, pay budgets are expected to increase by 3.2% in the year 2022. Merit, along with other types of base pay increases such as promotion pay increases, are included in the estimate. Even though inflation has continued to increase, the outlook for pay raises is still slightly higher than it was in August. The level of increase over the next few years is small, with this year's merit raises coming in at 2.8% and a 3% total increase in pay budgets.
4.2 million workers quit their jobs in October, a number that came down slightly from the previous month but still left the total number of job openings at 11. The quit rate has remained at a 20-year high, and employee expectations are at an all-time high.
Employers have had to increase incentives, pay and opportunities to attract and retain workers, and next year's round of pay increases will at least be going up.
Levanon said that most company raises were lower than the cost of living. It may be more equal in the future.
Many companies are making decisions to increase pay more than they previously forecast because of inflation. Pearl Meyer conducts an annual survey on pay budget expectations. When the firm started hearing a lot of anecdotal talk about much larger increases and more concern about retaining and attracting new employees, it decided to re-survey companies at the end of November. Half of the companies say they are revising their pay budgets and are expecting to give higher increases than they originally forecast.
Rebecca Toman, vice president of the survey business unit at Pearl Meyer, said that the pay budget forecast increased to 4.2%, which is higher than the low 3% they have seen for 20 years. The average increase in pay budgets is now 5.2%, and 25% of firms are planning to give pay increases greater than 6%. Firms are taking a second look.
Lauren Mason, senior principal in the career business of Mercer, said that compensation budgets are the highest they have been since the 2008 financial crisis. The off cycle pay increases that employers have already made throughout the year are not included in the compensation budgets. She said that the minimum wage hikes were being driven by the large employers.
Most companies are struggling to attract and retain workers because of the tight labor market and the uncertainty caused by the Covid virus and the omicron variant.
Leaving a job may be quicker than a better pay package.
The authors of the survey said that most employees would have no trouble finding a new role.
Andrew Challenger, senior vice president of outplacement and career transitions firm Challenger, Gray, & Christmas, says quitting jobs and taking advantage of a signing bonus is the best way to do it as a worker.
Levanon said that many workers switch to other jobs and get a big increase in wages.
Challenger said that most economists expect inflation and wage inflation to continue rising. It could be a year, it doesn't mean it's going to be two months. Lawrence Mishel, a distinguished fellow at the Economic Policy Institute, recently told CNBC that it is not going to be 4% or 5% a year for the next five years.
It is harder for companies to raise pay when inflation is low because a higher pay will make it harder to lower it in the future. The level of increase compounds annually.
The wage-price spiral is what CEOs are worried about, with higher labor market costs feeding into higher inflation across the board. The labor market and economy are realities that need to be monitored by the Fed.
Roger Ferguson, a former Fed vice chair and distinguished fellow at the Council on Foreign Relations, told CNBC on Friday that finding employees is still very difficult.
The more companies pay, the more they have to give up in margin, and that won't make shareholders happy.
David Kostin, the chief U.S. equity strategist at Goldman, told CNBC on Friday that wage inflation was the issue he would focus on. He is leery of companies with a high percentage of labor cost coming from because it places pressure on the margin. He said that it was going to persist.
Privately owned firms are more likely to raise wages than public companies and non-profits, according to Toman. Privately held companies don't face the same scrutiny of shareholders as publicly traded companies. Long-term equity and other incentives may be addressed by public companies.
Mason said that pay is not the only investment employers are making in their workforce. Employers have made significant investments in providing more varied health and well-being benefits.
According to the survey, 1 in 4 employers will increase their bonus pools over last year.
Employers are turning to variable compensation as another means of increasing employee pay without permanently impacting the cost structure due to the economic uncertainty surrounding the Pandemic and the emergence of the omicron variant.
Special bonuses are given as a recognition of extraordinary circumstances.
The company decided to give employees a one-time cash bonus.
Employers can choose to remain conservative with base salaries but still give employees more upside by offering bonus awards and long-term incentives. It is important for workers to consider the full compensation picture before making any move based on wages alone.
There are many factors that should cause inflation to moderate over time, including supply chain issues being worked out and more people going back to work. The current increase in demand for workers and lack of labor supply feeds the wage inflation and filling the 11 million open jobs will be one way to help bring inflation down. Even with the high level of opening, the number of people who are out of work just hit their lowest level in five decades.
With inflation projected to remain high in the first few months of 2022, it is important to note that annual raises typically occur between January and April, and there may still be more movement among employers to adjust pay to the on-the-ground economic reality. The compensation consultant was told by companies that they will keep an eye on the inflation number. It is a major driver of the larger than usual increases. She said that if companies find that they are not keeping up, they may add mid-year increases.
There is one finding from the compensation world that should make workers happy, even if the data suggests pay bumps won't match inflation. Almost all of the respondents to the survey are planning to give a raise in 2022. Toman said that they don't usually see that. That also says a lot. If you don't have a salary increase program this year, you're behind the mark.
Eric Rosenbaum was a contributor to this report.
