Organizations continue to combat labor market challenges with higher funding for merit increases, according to Salary.com’s Annual Pay Practices survey released today. The survey found that 64% of organizations are planning higher merit increases in 2023, a 23% increase from 2022.

“The slight decline in the presence of compensation philosophies, while surprising given the tenor of the times, could be a result of companies revamping their pay philosophies to address the growing number of state laws requiring pay transparency,” said Chris Fusco, senior VP of compensation at Salary.com. ”We expect to see the number of compensation philosophies rise next year.”

The survey, fielded in the fall of 2022 to HR professionals, reports that 40% find it more difficult than last year to attract qualified candidates. However, planned increases in bonuses and long-term incentives remain in line with the previous year's survey results at 38% and 18%, respectively.

According to the report, 72% of HR pros believe their employees are paid fairly, yet only half think their current pay policies are positioned to retain employees successfully. Meanwhile, 56% of organizations have a formal process to address compliance with equal pay laws, a percentage expected to grow. A majority, 56%, have a compensation philosophy; however, this represents an 8% decrease from the year prior.

"This survey tells us that communication around pay is lagging, and employee engagement may be suffering because of it," Fusco said. "Corporate leadership must address the dynamic of burgeoning pay transparency laws and a persistently tight labor market by pulling back the curtain on pay and training managers on how to have tough conversations. If they don't make progress, they could face lasting consequences."

The survey also found that with an unemployment rate in the 3.2% range, almost one-quarter of HR pros say their current level of turnover is causing them to miss production and delivery timelines, on par with the results from the prior year‘s survey. In addition, the highest level of turnover by region is in the mountain states and Midwest at 23%, while the lowest rates are on the west coast at 17%, according to the report.

The survey compiled responses from 1,012 organizations representing 21 industries between Sept. 2 and Oct. 21, 2022. Organizations ranged in size from small US-based businesses with a few employees to global organizations with greater than 10,000 employees.