Inflation gives U.S. workers ammunition in year-end pay reviews

With inflation soaring, American white-collar workers have an advantage in discussions over year-end wages, although it can be difficult to secure increases that exceed the price spike.

Insatiable demand for labor in the pandemic recovery – coupled with record quit rates and barely changing supply – has fueled wage increases this year, especially for lower-paying jobs in industries like hospitality and retail.

Salaries for office staff and higher income employees have not kept pace with the growth. But the recent surge in consumer prices now gives these workers more ammunition to negotiate higher wages.

“The rising cost of living is a feather in the cap for job seekers in salary negotiations with employers,” said Rich Deosingh, district chairman of recruiting agency Robert Half International Inc. ” If you look at jobs in big cities, such as New York or the Bay Area, salaries should be in line with or above the cost of living trend. “

A University of Michigan survey shows that one in five Americans expects an increase of at least 10% in the coming year. It remains to be seen whether they will get what they want and whether that will be enough to keep up with the inflation which has accelerated in 30 years. Either way, wage increases for skilled workers add to inflationary pressures.

Managers don’t want to give in to all demands, but the risk of losing valuable employees has led many to accept pay increases.

Like all HR managers right now, Andrea Mullens says one of her biggest concerns is retaining her staff. She has developed a habit of adjusting compensation in a preventive manner for certain employees to prevent them from receiving offers elsewhere.

“It’s crazy,” said Mullens, vice president of human resources in the cloud computing division of computer manufacturer Ingram Micro. “The market is swelling, we’ve really seen it.

A counter-offer that has become common in his industry is a 20% pay rise plus a one-time cash bonus to fill the gap with what a rival company hangs on. Another way to retain employees is to accelerate promotions to leadership, which can result in an increase of about 35% in cash compensation.

Mullens, who oversees a 2,000 white-collar workforce that is expected to grow “substantially” over the next three years, said that despite her best efforts, she has seen staff turnover increase through 2021.

Workforce consultants are now encouraging companies to conduct more so-called “stay-in” interviews, where managers try to find out more about what motivates employees and what would make them happy. Despite all the emphasis on work-life balance and flexible arrangements, it often comes down to money, according to a McKinsey survey earlier this year of more than 5,000 employees.

Almost half of all workers have gotten a raise in the past year or changed jobs for better pay, with those with high school diplomas and earning more than $ 75,000 a year being the most likely to have a bump, according to a Bankrate poll.

Workers who changed jobs in September saw their wages rise a record 6.6% since last year, according to payroll manager ADP, double the wage growth recorded by the the entire US workforce in the third quarter.

“Base salaries are rising very quickly,” said Scott Hamilton, who heads the compensation and human resources practice at Gallagher, an insurance and consulting firm.

The company conducted a survey earlier this year showing wages would increase by 3% on average in 2022, although it says that is already a conservative estimate now. “The cost of labor and the scarcity of labor have combined to create a perfect storm,” he said.

Average hourly wages rose 4.9% in October from the previous year, higher than the rate before the pandemic. But the wage increase was still not enough to keep up with inflation at 6.2% last month.

With the United States entering the most strained labor market conditions since the 1950s, wage pressures will take over as the dominant driver of price increases in the second half of next year, Aneta Markowska wrote this week. , Chief Financial Economist at Jefferies Group LLC. .

Not everyone will have a big bump. Many may have to settle for a 2-3% pay hike next year, according to Gartner HR research manager Brian Kropp, because these 15-20 pay hike counter offers % that their peers receive will consume a large portion of the compensation budget.

“In this environment, those who progress change jobs or ask their employer for a counter-offer – and usually get it,” he said.