What Is the Difference Between a Raise and a Merit Increase?Īlthough they may seem very similar, a merit increase is not the same as a raise. They are often used as part of an incentive package to reward employees who perform well and also act as motivation for other employees who wish to achieve their own merit increase.Ĭompanies who make use of merit increases often notice increases in employee retention, engagement and productivity, as well as overall employee satisfaction. Merit increases are often decided by using a combination of internal criteria, the budget of the company and an understanding of an employee's value within the job market. What Is a Merit Increase?Ī merit increase is essentially a wage rise that is given to employees as a form of recognition for outstanding performance. In this article, we take a look at what a merit increase is and what it could mean for you or your company. This is no different with terms such as ‘merit increase’, ‘raise’, ‘regular raise’ and ‘raise with inflation’. With so many terms around to describe what might, on the surface, seem like the same thing, it can be challenging to understand the differences. By conducting the appropriate research up front, employers can feel confident about their merit pay increase policies and be better prepared for these conversations with their employees.The business world is filled with jargon and technical terms that can be difficult to negotiate. The reality is that merit pay increases will likely still lag inflation and employees may be disappointed. It is critical to approach these decisions with as much knowledge and preparation as possible, armed with the necessary data and information on market trends around merit increases, inflation, employee retention, and the various other factors that impact merit increases. WorldatWork’s “2022-23 Salary Budget Survey” revealed that salary increase budgets reached their highest level in 20 years in the United States, rising to an average of 4.1% in 2022 with a 3.8% median.Īs organizations make decisions around merit pay increases for 2023, there are many important variables to consider in order to remain competitive with the outside market.According to Human Resource Executive, HR leaders are planning to turn to larger-than-usual salary increases in 2023, driven by a hot job market and record-high inflation.And 48% said they planned on salary budget increases that are higher or significantly higher than in 2022. A September 2022 Fortune article detailed how a quarter of employers that were surveyed plan to give increases in the range of 5–7%.Employers say inflationary pressures and the ongoing challenges of finding and keeping workers are the main reasons for the higher projected increases. are projected to grow, on average, just over 4 percent for 2023, which is less than half of the current annual inflation rate of 8.5 percent, according to survey data. A September 2022 SHRM article detailed how salary increase budgets in the U.S.Due to inflation, even with a 4.6% pay increase, some employees may still feel like they have taken a step backwards when it comes to their pay.īelow, we have highlighted additional data related to merit raises in the midst of record-high inflation to help guide employers when making these decisions. However, it is possible that these higher increases still may not meet the needs and expectations of their employees, who are faced with historically high inflation. Unfortunately, employers today could find themselves in a conundrum as they will likely be giving their employees historically high merit pay increases in 2023. The importance of aligning your merit pay increases to increasing employee retention, particularly your top talent and high performers.A possible recession in the upcoming year.Looming concerns surrounding potential layoffs.There are a lot of moving pieces in making informed, data-driven decisions for your organization. While the average annual pay raise has traditionally been around 3%, 2022 saw much larger pay increases and 2023 may see the largest increases since 2001. It is critical for organizations to be aware of these trends and data in today’s competitive labor market as they fight to retain and engage key talent. plan to boost salaries an average of 4.6 percent in 2023, up from 4.2 percent in 2022, according to the latest Salary Budget Planning Report by consulting firm WTW. In November 2022, SHRM shared that employers in the U.S. In today’s competitive labor market, it’s critical that employers’ 2023 Merit Pay Increases are in line with trending data. Rob Byron DecemHR Trends, Leadership, Talent Management
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