Companies paid smaller-than-planned raises to rank-and-file employees, while CEO compensation rose faster than inflation last year.

According to compensation planning survey approximately 1,000 employers from corporate benefits provider Mercer.

When planning salary increases for employees, companies said that on average they envisage a 3.9% merit increase and a 4.3% general increase.

But in March 2023, when asked about what employees were getting, the firms said they would reduce wage increases. In fact, they increased earnings by 3.8% and overall growth by an average of 4.1% based on employee and company performance during the 2022 calendar year.

However, the increase reached the highest level since the financial crisis of 2007-2008.

“But we’ve seen compensation growth start to slow a little bit,” Lauren Mason, senior director of Mercer’s career practice, told CBS MoneyWatch. “The increases that were received were slightly below what they had projected in the fall, meaning that as the organizations went through the final stages of management approval, those compensation budgets were cut.”

More than half of Americans earn more than $100,000 paycheck to paycheck


Past peak compensation increases

Firms missed the mark on planned increases as major employers across industries seek to cut costs. Meanwhile, the cost of living for workers has risen amid rampant inflation.

In the past, firms have given some workers off-cycle raises or counter-offers in an attempt to retain top talent.

“A lot of organizations are looking to gain more control over compensation, and I think we’ll probably see a peak in annual compensation increases this year,” Mason said.

It expects total annual increases to return to the 3.5% mark.

Lagging industries

Workers in the life sciences, energy and services industries received the most generous overall pay increases, averaging up to 4.5%.

The overall wage growth of healthcare, retail and wholesale trade workers lagged behind the overall wage increase by an average of 3.6%.

Wage transparency laws target pay disparities


Pay transparency

Pay transparency laws that have gone into effect in New York, California and Colorado have forced more employers to rethink and standardize compensation practices, given that policies arm workers with knowledge such as what the base salary and cap are for a given position.

As a result, companies are paying more attention to it increasing the wages of workers to ensure they don’t create pay inequities, according to Mason.

“Pay transparency puts more information at the fingertips of employees and creates a lot more questions about compensation and how they’re being paid versus the ranges they see from the outside,” Mason said. “This is another factor that can increase employee expectations of pay, so it’s important for employers to stay on top of the market and educate employees about how ranges are used and how pay is set.”

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