Salary Budget: Are Companies Planning To Increase? [Mini Report]

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Mini analysis: salary budget increases trends in 2022/2023 

The end of the year always turns into a rush, finishing up the last deadlines, closing out projects, and of course, planning for the next quarter. This past year especially has been interesting and complicated with the post-effects of COVID, mass layoffs, and inflation.

Given the constant changes, one thing remains the same: wanting to have a benchmark of industry peers on what they are up to and their plans to adjust yours accordingly.

That is why we launched our flash salary increase budget survey this past November 2022, to answer the question on every People Manager and Compensation & Benefits Specialists mind: “What are my peers planning for their next salary review budget? Who is taking Inflation or Market adjustment into account and how?”

We know it's always tough to gather trends on this topic without losing precious time. So we did the work for you and analyzed data from 152 companies this past month (November 2022) to bring you the newest and most relevant takeaways to inform your decisions and stay aligned with market trends.

Our analysis answers the following three questions and shares five key takeaways at the end of the report:

  • When do companies have salary reviews?
  • Are companies planning an increase?
  • How much to budget for these increases?

So, all that’s left is: are you ready to see how you compare to the market?

About the data

We looked at company size, location, and funding round as potential influencers on the results. When we found a difference it was noted.

  • Number of participants: 152
  • Size of company: About half (53%) of companies surveyed were between 100-500 employees (for further breakdown see chart below)
  • Industry: 50% in tech, other 50% spread in diverse industries (Banking, Education, Engineering, Health, etc.)
  • Location of HQ: Majority of companies surveyed were in France, UK or in Europe, with just 3% of data came from the US

When do companies have salary reviews?

Before we dive into the main question, we wanted to look at the frequency of salary reviews.

Historically, salary reviews often happen once a year when the market is evolving but overall steady. The economic context of the past 2 years is so tensed that the market tends to react quicker than before, companies could then be tempted to do the same. To investigate we asked companies about the frequency of their salary reviews.

What we found was that the vast majority of companies surveyed (67% to be exact) host annual salary reviews. But also, that 72% of companies haven’t changed their habits in terms of review frequency despite the current economic context.

The pie chart shows that 67% of participants have a salary review every 12 months, 30% every 6 months and under 3% have either 24 months or 9 months.
Figure 1: Salary review frequency

Though 30% of companies reviewing their salaries every 6 months have lately been increasing the frequency of review. This is most likely to give themselves the ability to react quickly to market changes. The economic is uncertain and evolves very quickly, having more frequent salary review allows company to react and adjust before the situation starts to have an impact in terms of talents’ attraction and retention.

Communication is key! when was the last time that you talked about your compensation decisions with your employees? We recommend being as clear as possible and collecting feedback.
Figure 2: Companies on changes in the frequency of their review process

Are companies planning an increase?

79% of participants have planned a salary increase by the end of 2022 or the beginning of 2023.

Out of those participants who are planning an increase, 58.5% are changing the usual process and methodology due to the current economic context. This can include taking into context inflation, and market adjustment not just salary and company performances.

Figure 3: Have you planned your budget?

Only half of the active participants have already planned a budget for their next salary review campaign. Given the timing, we’re already at the beginning of December, it’s likely that companies are not yet sure about what they should do, how they will take inflation into consideration; they know the market is evolving, but how fast? on which position? These are unanswered questions that make the budget definition even more complicated.

How much to budget for theses salary increases?

The overall budget can be split between several variables:

  • Inflation (speaks for itself…!)
  • Market adjustment (if the market median increases and you are positioning your salaries or salary grids on market, you will have to increase internal compensation too)
  • Merit increase: rewards an employee on their performance over the past period
  • Promotion: rewards an employee for the evolution of their competencies and/or scope of influence - usually moving up from one level to another

Our survey concluded that the overall average budget is 6%.

We dug deeper and looked at several other factors that could impact the change in the budget such as funding round or size of company but found nothing specific to note. However, the global budget varies greatly based on the location of the company.

Figure 4: Average global budget (in % of the salary mass)

Why could this be?

Of course the largest outlier in this data set is the USA. Budgets are historically higher in the USA, which could explain the big discrepancy (plus we have a low sample of companies compared to the other countries as we are primarily EU based).

For some countries we can see a correlation between salary increase budgets and inflation rates. For example, France has a lower inflation rate of 6.2% and the lowest budget planned (5%)  v. The Netherlands with an inflation rate of 14.3% and a higher budget planned (7.7%).

What about the impacts of inflation on the budget?

Interestingly enough, the divide between allocating and not allocating a budget to inflation adjustment was quite minimal (see chart below). Only 7% of respondents are planning on creating a separate budget, which is, on average 3.3% of the salary mass.

Figure 5: Are you allocating part of your budget to inflation adjustment

Companies taking inflation into account in their overall budget are allocating an average of 49.5% of their budget to it.

We don’t notice significant variation based on location or the number of employees. Except for Seed companies with 81% of their budget allocated to inflation adjustment, the funding round doesn’t seem to have an influence either.

Now is a great time to perform a health-check on your comp policies and see what you can do to stabilise a worried workforce. Here are 5 tips to mitigate the effects of inflation in your workplace.

Are companies taking into account market adjustment in their budget?

The majority of participants noted that they are or are considering allocating part of their budget to market adjustment (see chart below).

The companies who are planning on a market adjustment budget (48% shown in the graph above) allocate on average 37.5% of their budget to it.

We don’t notice significant variation based on location or the number of employees. Except for Seed companies with 81% of their budget allocated to inflation adjustment, the funding round doesn’t seem to have an influence either.

Are companies taking into account market adjustment in their budget?

The majority of participants noted that they are or are considering allocating part of their budget to market adjustment (see chart below).

The companies who are planning on a market adjustment budget allocate on average 37.5% of their budget to it.

Figure 6: Are you allocating part of your budget to market adjustment? 

What we did notice on this question was that there was a strong variation depending on the HQ location. The variation based on HQ location can be hypothesised that it is due to quick changes in the market with more competition for talent. Or perhaps in the UK, the effects of the energy crisis and inflation. Since each location varies so much, it becomes increasingly important to use reliable real-time data for your salary benchmarking.

Figure 7: Part of the overall budget allocated to market adjustement (% of the overall budget)

Are merit budgets split into merit and promo?

As a reminder, here are how we define merit and promotion:

  • Merit increase: rewards an employee on their performance over the past period
  • Promotion: rewards an employee for the evolution of their competencies and/or scope of influence - usually moving up from one level to another

Figure 8: Do you split your merit budget into merit and promo?

Companies splitting their budget between merit and promo allocate 46% of the overall budget to merit and 25% to promotion.

On average the ratio between merit and promotion, for companies applying this split is 60% merit/ 40% promo (here we are not taking inflation or market adjustment into account). As it's not widely spread, we can’t notice strong variation based on market, headcount or funding round.

Did you know? There is a 5% adjusted pay gap in European startups. Is there a gap in your company? 

The key findings on salary budget increase for 2022/2023

Not so surprisingly, there are some key trends happening on salary increases as we reach the end of 2022. To stay aligned with the market, we have our key takeaways below:

Frequency of salary reviews: Annual salary reviews are still the norm, but that is shifting slightly. Does the current salary review process work for your team, and your employees? Ensure that your employees also feel satisfied and that the process is clear to them from day 1.

Salary increases: 79% of participants have planned a salary increase by the end of 2022 or the beginning of 2023.

Budget planning: on average, companies are planning for a 6% budget dedicated to increase. And only half of the participants have already planned a budget for their next salary review campaign. Meaning if you’re not ready yet, don’t stress; you’re not alone.

Market adjustment: 68% of companies are or are considering allocating part of their budget to market adjustment. Make sure to check that your employees’ salaries are aligned with their market value; this helps to increase employee satisfaction and retain top talent. PSST we can help you do that at Figures! Book a demo today.

Inflation adjustment: Companies taking inflation into account in their overall budget are allocating an average of 49.5% of their budget to it. Learn more about how you can respond to inflation with our Making inflation pay free eBook.

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