Economy Down, Pay Up? Wages Get a Boost at US Firms

Pumped Up Paycheck

The US labor market remains especially tight at present. Many employers are having difficulty filling open jobs, all while inflation is pushing up costs and reducing Americans’ spending power. In a bid to retain talent, many companies are handing out raises or special one-time bonuses.

This includes oil giant ExxonMobil (XOM), who gave employees a one-time 3% payment last month. Microsoft (MSFT) announced it would double its global budget for merit-based raises this spring. T. Rowe Price (TROW) told its employees that 85% of them will receive a 4% raise as of this month.

Odd Timing

Most raises or bonuses are planned out months ahead of time. The somewhat abrupt mid-year pay bump speaks to the current macroeconomic environment in which some companies are paying up to retain talent. But there are some companies like Netflix (NFLX) and Coinbase (COIN) that have been laying workers off.

Broadly speaking, the current pace of inflation combined with a tight labor market has forced some employers’ hands. Many companies look to raise employees’ pay by around 3% annually, but the average in 2022 has been 4.8% according to research from Pearl Meyer. Hiring managers feel pressure to keep pace with rising costs as well as what other companies are paying.

Where Wages Are Going

Inflation is running at 8.6% year-over-year — its fastest pace in over four decades. At the same time, unemployment checked in at 3.6% in May which is near prepandemic lows. This pressure on employees’ spending power and simultaneous labor shortage has companies changing how they study pay data.

PricewaterhouseCoopers previously reviewed employees’ wages once per year, but executives say it’s now a constant process. If the economy experiences a protracted slowdown, raises and bonuses could become more specifically targeted. Analysts say high-performers or those who serve in-demand roles are most likely to get a bump. While 2022’s raises have been more widespread, many expect they will be more “selective” and “thoughtful” in the near future.

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