The marketplace is adjusting to an unusual series of events that will affect your pay next year. What should you anticipate for merit increases and pay policies for 2023? Here are some thoughts and how to respond:
Inflation – In 2022, inflation has peaked-out at a 40 year high. It’s currently running at between 6 and 7%. If businesses currently budget for performance increases averaging between 3 and 4%, that means that high performers will receive close to the inflation rate (meaning they stay even with inflation), while everyone else will take a pay cut (with inflation outpacing the pay increase). Your strategy? Belt tighten early and keep your costs down in order to come out even and not lose pay momentum. Also, check out the supply/demand equation in your industry and function.
Supply/Demand – If the supply of talent in your industry/function is high, with the demand low, expect a small increase in pay. If, on the other hand, the job pool is small, with the demand high, expect an oversized pay increase, at least at the level of inflation or higher. Jobs that are at a premium will have to inflate their pay policies in order to attract and retain the talent to move the business forward against the competition. This may cause an internal issue with current employees who may earn less than the new ones.
Business Strategy – In order to pay for the large increase in pay to attract and retain quality employees, businesses have few options. Some strategies are: Increase the price of their products/ services (which adds to inflation), reorganize for efficiencies, reallocate funds to functions that produce revenue or cut costs, or reduce the total number of employees. You should be seeing the tell-tale signs of your company’s strategy, then implement your own so you’re not caught in a squeeze. Check out the marketplace and the impact of the supply/demand equation.
Performance – Clearly the winners during this transition period are going to be the high performers. Individuals caught up in the “quiet quitting” movement (to do the standard job and no more) may need to rethink their strategy. Now is the time to refocus your performance to optimize the pay increases that are planned for 2023. Find ways to either increase revenue, find more effective/efficient ways to perform your job, or steps to reduce costs through new systems, performance standards or incentives.
If your current job is critical to the operation of the business or difficult to find talent and your performance is above average, you have little to worry about. The exception is if your company is not keeping up with inflation, causing you to fall behind. Another exception is if your company is having a business downturn, then you need to assess your place and opportunities for the next 2 to 3 years. If the issue is longer term, asses how it will affect your career trajectory.
Quality companies will always pay for talent, performance and results.
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