Salary outlook 2023: three things employers can do when salaries lag inflation 

Soaring inflation, tight labour markets and global economic uncertainty are clouding the outlook for salary increases in 2023 as organisations balance attracting and retaining talent with keeping remuneration budgets under control.

Australian employers are budgeting for a 3.0% median salary increase in 2023, unchanged from the increase for 2022, according to Mercer’s Australia Total Remuneration Survey (TRS).

The cautious approach will come as a hard truth for many employees faced with cost of living increases running above 6% as the Australian economy continues its strong recovery from the pandemic.

Hot jobs and salary trends: impressive salary rises for some sectors

This year’s findings also reveal that some sectors are poised to receive significant salary increases. IT marketing, engineering and manufacturing are offering premium wages for hard-to-fill roles.

For example, new manager hires in project engineering are being offered a staggering 22% higher average base salary than those already in the role. In information technology, new hires in senior applications development roles are receiving between 13-16% more in base salary on average, highlighting the significant premium organisations are willing to pay for top talent.

Addressing talent shortages with total rewards

Attracting and retaining the best people is more important than ever in 2023. More than a third of organisations are reporting increased staff turnover this year with voluntary attrition rising to its highest point in five years. More Australians are employed than ever before and unemployment rates hover at near 50-year lows. There are more job openings than unemployed people.

Two-thirds of executives now say they are facing crisis from labour shortages.

Pay is a tricky negotiation at the best of times; often, workers will not raise the issue with their employer but simply walk away to a higher paying role.
 Nithya Abraham

Client Engagement Manager – Digital and Insights, Pacific

In response, more than a third (38%) of HR leaders say their top priority is improving their total rewards package. From flexibility and leave to well-being programs and corporate discounts, communicating the non-salary benefits on offer to staff is becoming an increasingly critical part of the retention toolkit.

What can employers do when salaries are not moving at the rate of inflation?

An uncertain economic outlook, rising inflation and a tighter-than-ever labour market mean employers need to be competitive, agile and purposeful to attract and retain talent. Here are three recommendations for organisations to consider:
  1. Get creative with rewards
    Instead of relying solely on annual increases, consider using targeted rewards to retain key talent, such as high performers and staff with critical skills.
  2. Focus on non-financial elements of compensation
    Inflation can impact each employee in different ways. Consider flexing your benefits program to help reduce the increased pressures on employee financial wellness and well-being.
  3. Reviewing and refreshing total rewards philosophy
    Organisations should be clear about what outcomes they want to incentivise in today’s environment and determine what elements of their total rewards package should be prioritised to deliver on these outcomes.
The best employers take a data-driven approach to set salary budgets and pay increases informed by both market conditions and business priorities. Benchmarking against the market with the latest rewards intelligence is the best start for navigating the year ahead.

Mercer’s Total Remuneration Survey

Mercer’s Total Remuneration Survey is the largest and most authoritative source of high-quality market salary data, from base salary and short-term incentives to benefits and total remuneration.

Download the executive summary for insights on hot jobs and salary movements trends and learn more about the TRS survey.

About the author(s)
Nithya Abraham

Products Leader – General Market, Digital & Insights, Mercer Workforce Solutions, Pacific

Chi Tran

Head of Market Insights and Data, Pacific

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