With four and a half months remaining in 2022, benefits and compensation planning are high on the list of priorities for everyone from Chief Financial Officers (CFOs) and Human Resources (HR) teams to Total Rewards staff, and for good reason.
In the past, it was common for employers to ask employees to share the burden in a tightening economy by foregoing pay increases and/or absorbing more of the cost of benefits and out-of-pocket costs (David Ried, “The Impact of Inflation on Your Business’ Benefits,” Forbes). However, as companies plan for 2023 compensation and benefits, it seems the Great Resignation and tight labor market are taking things in a different direction. To boost recruitment and retention, many companies are looking to enhance pay and limit the impact higher benefit costs may have on employee income.
According to the Bureau of Labor Statistics, consumer prices rose 9.1% from June 2021 to June 2022 – that’s a 41-year high. As reported by Goldman Sachs/AYCO, “Real hourly earnings (which is wage growth minus inflation) have actually declined 3% since last May—meaning many employees have effectively gotten a pay cut this year.”
Mercer’s Global Talent Trends 2022: Rise of the relatable organization revealed enhancing total rewards packages are among the top three HR priorities, which makes sense considering employees surveyed ranked their priorities as job security, remote work, pay, fair reward practices, vacation/time-off, and medical insurance.
Gartner surveys conducted in early 2022 found 20% of firms are planning more frequent salary reviews, while 15% are exploring four-day workweeks and alternative schedules. In Mercer’s Global Talent Trends 2022: Rise of the relatable organization, top strategies for talent retention were identified as offering more rewards and compensation; increasing compensation for those below benchmarks; proactively adjusting pay to promote internal equity; increasing employer benefit costs so employee take-home pay increases; increasing retention bonuses; offering more personalized rewards packages; and more.
Other compensation strategies companies are pursuing include one-time market adjustment bonuses; minimum wage increases; pay increases for a specified period (i.e., six months); having more frequent merit pay reviews; increasing average raises, and more.
When it comes to benefits, companies are pursuing a variety of strategies for their 2023 programs. Financial, mental, and emotional wellness budgets are increasing. Some employers are offering lifestyle accounts, giving employees hundreds or thousands of dollars to use as they please on a variety of expenses. Paid Time Off policies are being modified to allow employees to convert time for cash and 401(k) contributions. Four-day workweeks and remote work flexibility are on the radar, as are other benefit programs (i.e., pet insurance, ID theft insurance, childcare/eldercare assistance, student loan help, legal services, financial planning support, and more) and discount programs (which provides employees with price breaks at retail stores restaurants, and more).
One major point of caution: While inflation has increased dramatically over the last year, certain segments of the economy – like healthcare – typically lag when it comes to showing the impact. This is due to several factors including when/how medical contracts are negotiated and renewed. As reported in a McKinsey & Company article, COVID-related costs, supply chain pressures, general inflation, and pay hikes for medical staff will be reflected in 2023 renewals, with potential increases approaching 17%. In turn, these cost increases will be passed onto employers and employees via higher out-of-pocket costs and premiums and lower, more restrictive benefits.
In Mercer’s report, The CFO perspective on health, CFOs indicate healthcare costs are one of their top five concerns; however, they seem to be balancing the impact on their bottom line with the impact a mass exodus of employees could have. It seems the latter is even more concerning as CFOs indicate most are moving ahead with pay and benefit enhancements (or at least limiting the impact of increasing costs on employees).
There is no quick fix or easy answer when it comes to compensation and benefits planning for 2023; the sooner your organization starts, the better. RBT CPAs can help. Our Visions Human Resource Service Affiliate offers benefits and compensation analyses (along with a variety of other services). To free you up to focus on your compensation and benefits strategies, you can count on RBT CPAs to address all your tax, auditing, and accounting needs.