The pay negotiation season is looking increasingly fraught this year as workers fret about 8% inflation — and their job security.
While the labor market remains tight, evidenced by last month’s better-than-expected increases in both jobs and wages, employers are gaining back some leverage just in time for the tough conversations between bosses and employees to begin. This week Goldman Sachs Inc. said smaller bonuses and job cuts are coming while the running tally of tech layoffs hit 52,771 in November, the highest monthly total for the sector since Challenger, Gray & Christmas began keeping detailed industry data in 2000.
“Over the last year employees knew they could get more money if they left and that remains true, but the ease with which they can get a new job has decreased,” said Tony Guadagni, a senior principal at consultant Gartner Inc. “It’s not the job market it was even three months ago. That shifts the balance of power back to organizations a bit. How they use that to their advantage is a bit unclear, and that’s the big thing to watch as we go into this cycle.”
One thing that’s clear is the gap between the raises that workers expect for next year — 5.5%, according to Gartner — and what companies have budgeted for, typically between 3.5% and 4.5%. One or two percentage points may not seem like much, but it can represent hundreds of millions of dollars.
Some of that disconnect stems from people mistakenly assuming that their employers would deliver raises in line with inflation, but in the current price environment a cost-of-living boost isn’t realistic in most cases. The fault also lies with employers for keeping their compensation practices deliberately opaque for years. While that’s starting to change, sparked by movements to improve transparency, this compensation cycle could be a particularly contentious one, as employees and bosses each have reason to dig in their heels.
“This is a fundamentally different salary negotiating season than we’ve seen in the past,” Guadagni said. “People are going to get smaller raises than they think they deserve and there will be a lot of hard conversations.”
Companies are preparing by harvesting all the compensation information they can from external data providers, economic surveys and industry recruiters, so they can finalize their budgets across teams and departments before the holidays and map out different scenarios depending on business conditions. In January, the pay cycle kicks into high gear, with performance reviews and compensation conversations extending into late February, when bonuses are typically paid out.
What’s different now, for many white-collar workers at least, is the ability to work from home a few days a week is commonplace, which delivers the same value as a 5% to 10% pay increase, according to research from economists including Stanford University’s Nicholas Bloom. Companies that don’t raise base salaries by as much as workers want can use that increased flexibility as a sweetener. Startups can always dangle equity in lieu of cash, and firms like Lattice, which provides workforce-management software, is doing so for certain employees, according to chief people officer Cara Brennan Allamano.
“We’re starting to focus more on the total reward, which is something we did not pay a ton of attention to in the last few years,” she said. “That means looking at benefits, equity and also what your career experience will be. All of those things are currency. It’s a dramatic shift from last year.”
For example, Lattice is enhancing its fertility benefit for employees next year, while other employers are adding more resources for employee mental health. Companies need to deploy a “full arsenal of rewards to address the unique nature of the 2022 labor market,” said Lori Wisper, a managing director at workplace consultant Willis Towers Watson. The problem is that employees often downplay the value of other facets of compensation, according to Brian Dunn, director of professional programs at Cornell University’s Institute for Compensation Studies.