Death of the annual pay rise: Inflation and staff shortages are driving firms to bump-up salaries

Inflation and ongoing staff shortages are prompting companies to bolster salaries more frequently in a bid to retain valued workers and hire new ones, studies show.

US companies are expected to bump their budgets for salary hikes to levels not seen since 2008, according to a Conference Board survey. Projections show the jump will hit 3.9 percent – nearly a percentage point greater than the three percent increase observed last year, the think tank said.

Accelerating inflation and wage growth among new employees were the main drivers of the trend, the survey found.

A Wall Street Journal article revealed that the demand for workers has become so insatiable that employers across the board – ranging from factories to tech firms – are conducting more regular pay reviews to retain talent while remaining competitive.

Ceramics company CoorsTek Inc. told the outlet that it was among the companies embarking on quarterly pay reviews, rather than the traditional annual reviews.

‘When the market is evolving in real-time and there really isn’t a leading indicator other than what you’re seeing to compete and hire, you quickly have to adjust,’ company executive Irma Lockridge told the Journal.

US companies are expected bump their budgets for salary hikes to levels not seen since 2008, according to a Conference Board survey

Research shows that switching jobs can be a lucrative career move.

Those starting positions with new companies were rewarded with an eight percent page hike last year, according to a fourth-quarter report by the ADP Research Institute.

‘Wage growth among job switchers has been the biggest beneficiary of current labor market conditions as firms are struggling to find available workers,’ the report said. 

The average job holder received a 5.9 percent increase last year – an all-time high, the same study found.

The turnover rate was 5.1 percent.

New hires received average salary increases of eight percent, while existing employees received record-high bumps of 5.9 percent last year, research found

The inflation rate, which hit 40 percent in January, is also contributing to the unusually generous pay raises.

With prices rising 7.5 percent year-over-year, it was the highest spike in consumer goods prices since February 1982.

A Mercer study released last month revealed that while about half of the surveyed employers weren’t planning to conduct more frequent salary reviews as a result of inflation, about 25 percent said they would mull it over.

Another Mercer report found that merit increase budgets were averaging 3.2 percent – less than half than the rate of inflation.

However, it also revealed that 37 percent of survey employees have boosted their minimum wage since last March, and that average hourly earnings have increased by nearly five percent. 

Among employers, about 3

One case study suggests increasing employee salary aided in retention.

In 2015, Gravity Payments chief executive Dan Price made the controversial move of boosting the minimum salary at his company to $70,000. He reduced his own salary in order to find the intiative.

Although he had his skeptics, the experiment paid off, with CBS recently reporting that his company is today exceeding expectations  and has more than doubled its employees.

‘Our turnover rate was cut in half,’ he told the outlet. ‘So when you have employees staying twice as long, their knowledge of how to help our customers skyrocketed over time and that’s really what paid for the raise more so than my pay cut.’