Given the fever pitch of 2021’s labor market, employers knew they were going to have to plan for larger raises in 2022.
That led companies to budget for average raises of 3.8% .Those budgeted raises may have outpaced historical averages, but they aren’t keeping pace with inflation or, in many cases, with the going rate for a new hire.
The latest data from the Bureau of Labor Statistics shows median weekly earnings rose 4.2% in U.S.metro areas between April 2021 and April 2022.
In some metros, it was even higher.Portland was one of those areas, with median weekly earnings logging a 7.8% increase year over year.
Yet that figure only ranked the city 103rd out of the 390 locales BLS studied.
Among Oregon cities, Salem fared best, ranking 38th, with the median weekly earnings figure rising by 13.2%.Albany followed Portland among Oregon-ranked areas, with a 6.9% tally, good enough to rank 126th.The Bend-Redmond area fell in the middle, with its 3.8% rise falling just short of the national average.
Medford, Corvallis, Eugene and Grant’s Pass all fared worse than average.In Grant’s Pass, the average median salary dropped by 6.6%.
The median figure fell by -0.8% in Eugene.
Portland did log the nation’s 20th highest media weekly earnings figure, at about $1,201.
The data suggests that what would have been a traditional raise two or three years ago may not cut it for many employees, especially when it’s far from what they could fetch on the open market.
Experts say the issue is posing several challenges for companies.
[Carol Schmidt](portland/search/results?q=Carol Schmidt) , senior director of human resources at Morgan Hunter Cos., said what she’s seeing in 2022 is unprecedented.
“We’ve never seen the pay-rate increases that we’ve seen over the past year,” said Schmidt, senior director of human resources at Morgan Hunter.“And candidates keep getting it because there are no other options.”
It’s a trend that’s straining small businesses that are feeling the squeeze from soaring inflation on multiple fronts , and experts say the pace of growth isn’t sustainable.It’s also causing several headaches — particularly when companies pony up for new hires and existing employees believe they are losing out by being loyal.
Recruiters say a day of reckoning is likely on the horizon as companies realize they are overpaying for many roles, but they admit the current hiring market gives them little choice in the short term.
Because the price to bring in a new employee is so high, Schmidt said companies are struggling with internal pay-equity issues
“They have to look at the employees that they have, and if they’re having to bring people in above that pay, then they have to raise them,” she said.“It’s kind of a vicious cycle.
If they don’t, their staff’s getting plucked by other companies.”
Adding to those challenges is an increasing willingness — especially among the youngest members of the workforce — to freely discuss compensation.
“I literally had a company tell me that they had an employee do a Google spreadsheet of everybody’s salary and send it out to their friends,” Schmidt said.
Salary inflation causing internal pay-parity issues
[Jeremy Darron](portland/search/results?q=Jeremy Darron) , Northeast technology and digital practice leader at talent firm Vaco LLC, said companies need to consider the implications of hiring from the outside at a higher rate than existing employees are making.
“Are you really going to pay someone from the outside more than your current team?” Darron said.“You have to look at your staff and take care of the employees who are the ones you can’t lose.”
Darron said every company’s situation is different.Vaco is seeing several approaches to pay in this climate, including midyear raises and a variety of bonuses.
Vaco works with a number of technology companies, and Darron said the majority of those companies are increasing salaries for established employees and entry-level hires alike.
Darron said entry-level salaries are significantly higher than just three to four years ago.
Some software engineer roles are paying 50% more than they were a few years ago.
Because of those trends, companies are taking drastic steps to avoid parting with the existing talent in their ranks.
“The counteroffers have been extraordinarily aggressive in ways that you almost can’t even believe it,” said [Leslie Loveless](portland/search/results?q=Leslie Loveless) , CEO of executive search firm Slone Partners, a life sciences executive recruiting firm.
How companies can retain talent if they can’t afford big raises
Loveless said she is seeing more companies get creative on the retention side when they can’t afford to keep pace with a traditional salary increase.
One increasingly common option is long-term retention bonuses that reward candidates for staying for a set period of time with their company, often two or three years.
That allows the company to spread out the cost while avoiding losing key personnel that would be expensive to replace.
Loveless said the best practice for employers is to be proactive with existing employees.
“In the end, you want that person to be so happy that they never get far enough in the conversation with another company to even have an offer put in front of them,” Loveless said.
She said you want to create an environment where it feels like a risk to leave because the employee is happy, has a defined career path and is proud of the work they are doing.
“You have to make it about more than money, because the minute that it’s only about the money, then there’s always somebody that’s going to be able to pay more than you,” Loveless said..