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Why workers should expect a raise, and that it won’t match inflation

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The Great Resignation is occurring amid rising inflation, and as employers face the tightest labor market in recent history, how much to raise employee pay in 2022 is a challenge. Corporations are generating record profits, and workers are being pressed to keep up with rising costs for basics including food, gas, cars and housing. This doesn’t mean wage growths next year will equal the rate of inflation. 

The latest inflation reading from the Consumer Price Index came in at 6.8%This is the largest year-overyear rise since 1982. The fourth quarter CPI reading may have marked an inflation peak. However, employers are expecting pay increases of only half that amount next year.

The past decade was a good one for employers. While inflation has hovered between 1% to 2%, pay increases have gone up between 2% and 3.3%. But for the first time in several decades, “inflation is an important factor in deciding annual raises,” said Gad Levanon, chief economist at the Conference Board.

At a meeting this week between Google employees and tech giant Google, tension was apparent. CNBC also received audio and video. employees being toldAs a general rule, their increases won’t match the current inflation rate.

CNBC’s latest All America Economic Survey finds inflation firmly eclipsing CovidPublic concern number one

These fears are reflected in the forecast that pay budgets will rise 3.2% by 2022. Mercer Compensation Planning Survey. That figure includes both merit pay and any other base increases such as promotions pay, which is around 3.5%. Mercer is still a little behind the 3% to 3.3% increase in inflation, but its outlook remains unchanged from August’s 3% and 3.3% projections. And the level of increase over 2021 raises is small — this year came in at 2.8% merit raises and a 3% total increase in pay budgets.

A tight and stressful labor market. workers are unionizing to an extent not seen in recent decades and millions of workers are quitting jobs — 4.2 million workers quit their jobs in OctoberThe number of open jobs was 11 million, although it fell slightly from the previous month. Employee expectations have reached an all-time high and quit rates are still at their highest level in 20 years.

There is still room for pay increases in 2022

The employers had to improve incentives, pay, and other opportunities in order to keep workers. This year’s pay increase will not be the last.  

“In 2021, most company raises were much lower than the increase in the cost of living,” said Levanon. It may even be equal in 2022. 

Numerous companies monitor inflation regularly and make decisions about raising pay. Pearl Meyer is a compensation consultant that conducts an annual study on the expectations of pay budgets. The data for the year showed a “lowly 3%” projection of 2022 pay increases. However, when Pearl Meyer began hearing more about larger raises and concerns about keeping and recruiting new workers, they decided to conduct a resurvey of companies in November. About half of respondents say that they’re. revisiting their pay budgets for 2022They are anticipating higher than initially forecasted.

All told, the forecasted pay budget increased by 4.2%. “This is more than we have seen in the past 20 years.” Rebecca Toman (Vice President of Pearl Meyer’s survey business unit) said. The average pay budget increase is 5.2% for half the companies, while 25% of those who said they would be increasing it are planning on giving raises greater than 6%. Toman stated that “Firms have been taking another look at their pay budgets and this is a significant move.” 

Lauren Mason (senior principal, Mercer Careers), stated that although compensation budgets don’t rise as much as employees expect, they’re the highest since 2008’s financial crisis. These compensation budgets don’t include any ‘off cycle” pay increases employers made in the past year. She explained that this has had a significant impact on hourly work, and 37% said they increased minimum wages for 2021. She added that minimum wage increases are driven by large employers, which makes them a greater share of America’s workforce.  

For a better job, leave

Balancing both the tight labor market driving the wage increases and the economic and health uncertainty from successive waves of the Covid virus, and now the omicron variant, most companies are still struggling to attract and retain the workers they need. 

This means that leaving your job could be the fastest way to better wages.

According to Mercer’s survey, most workers would not have any trouble switching jobs. 

Quitting jobs and taking advantage of a signing bonus, higher salary and better incentives companies are offering to attract employees is “the best way to do it as a worker,” says Andrew Challenger, senior vice president of outplacement and career transitions firm Challenger, Gray, & Christmas. Challenger stated that you can negotiate with your employer for competitive wages in an environment of rising inflation. 

“Many workers switch to other jobs and get a big increase in wages, and in many cases more than the [increase] in cost of living,” Levanon said. 

Most economists expect both inflation and wage inflation specifically to continue rising in 2022, Challenger said. Even if inflation remains high, it is not a problem. expected to moderate eventually. This doesn’t mean it won’t be two months. It could take a whole year. But it is not going to be, you know, 4 or 5% a year for the next five years,” Lawrence Mishel, a distinguished fellow at the Economic Policy Institute, recently told CNBC.  

This is an important consideration when companies set pay increases. Once a worker has been paid more, it becomes harder for them to reduce their pay in the future as inflation falls. This is because the rate of increases in pay rises each year.

Record profits by CEOs. The C-suite’s view on wages

Even though they have record profits, CEOs are concerned about the so-called wage-price spiral. This is a situation where higher labor costs lead to higher inflation. Although the Fed claims it doesn’t yet see any signs, it needs to monitor economic and labor market reality.

Roger Ferguson, ex-Fed vice chair and distinguished fellow of the Council on Foreign Relations, said that finding employees was still difficult. He spoke to CNBC’s “SquawkBox” on Friday. We are beginning to notice that pricing for the end product is starting to change and this could be the start of what we refer to as the “wage-price spiral”.

Stock market investors will not be happy if companies pay more than they can afford to lose in margin.

“Wage Inflation is what I’d focus my attention on,” said Goldman Sachs chief U.S. equity strategist David KostinCNBC interview with him on Friday. He said that it puts pressure on certain companies on the margins and that he was cautious about companies that have a large labor cost as a percentage of their overall operating costs. He said that this was a major headwind and will continue to exist.

Toman stated that the most distinguishing factor of Pearl Meyer’s data, and among those firms who are planning more aggressively to raise their wages, is privately-owned firms. This contrasts with public companies or non-profits. Privately owned firms plan the greatest raises and don’t get the same scrutiny from shareholders as public companies. Public companies may also be looking at pay in different ways. 

Mason explained that “employees need to remember that wages are not the only investment they make in their workforce.” “Employers invested significant amounts in offering more health-related and well being benefits during the pandemic.” 

According to Mercer’s research, one in four employers plans on increasing bonus pools by over 10% compared to last year.  

“Given the economic uncertainty surrounding the pandemic and the emergence of the omicron variant, employers are turning to variable compensation as another means of increasing employee pay without permanently impacting the cost structure,” Mercer stated. 

Toman stated that companies do offer special bonuses to recognize “extraordinary” situations.

Google is actually quite good. recently decided to give employees a one-time cash bonus.

Bonuses and long-term incentives, unlike changes in the base salary that compound over time offer employers an option. They allow employees to have more flexibility while keeping their base salaries low. Workers should consider all aspects of the compensation package before making any decisions based solely on their wages.

Many factors should cause inflation to moderate over time — even if it remains at a higher level than had been typical over the past decade — from the supply chain kinks being worked out and, in the labor market, specifically, more people going back to work. The current increase in demand for workers and lack of labor supply feeds the wage inflation and Challenger said filling the 11 million open jobs will be one way to help bring inflation down. There are more people returning to work. Despite the fact that there is a lot of job openings, jobless claims just hit their lowest level in five decades.

Inflation is expected to be very high for the first months of 2022. It’s important to remember that annual increases typically take place between January and April and employers may have more flexibility to adjust their pay according to current economic realities. According to the Pearl Meyer survey, respondents said that inflation will be closely monitored by their companies. Toman stated that they know inflation is a significant driver for these higher than average increases. Toman said, “And it’s possible that certain companies will add to their mid-year growth in 2022 if the company finds they aren’t keeping up.”

Toman believes that workers should be happy, even though data suggest pay hikes will not match inflation. Nearly all of the respondents to Toman’s survey (99%) said they plan on giving salary hikes in 2022. Toman stated, “We don’t often see that.” That speaks volumes. You’re likely to be behind in 2022 if you haven’t implemented a salary rise program.

CNBC’s Eric Rosenbaum contributed to the report

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