Employers will focus on retaining their current workers more than recruiting as they continue to struggle with workforce issues, according to the Palmer Group’s annual salary guide. 

The survey, conducted each year in collaboration with the Greater Des Moines Partnership, is done to help companies and job seekers plan for the future.

This year, respondents were asked about their plans to give raises in 2023, what their hiring plans are for 2023, their outlook and focus for 2023, and their strategies regarding remote work versus working from the office.

David Leto, Palmer president, said this year’s survey results show a marked shift from hiring to retention in 2023.

This year’s survey indicated 57% of those responding are focused on retaining workers in 2023. That is up from 31% in 2022.

“I think coming out of 2021 and getting thinking about 2022, people were really focused on adding staff and hiring and some companies had done some layoffs, so they were trying to get their staff levels back. But there’s definitely a focus this year on retention,” Leto said. “Training new employees is expensive, and I think people have realized labor participation rates are not quite back to where they need to be. And unemployment rates being so low, it’s a focus on keeping their people because if they don’t, it will just be harder and harder to get somebody back into that seat and get them to the level where they need to be.”

Those who said their focus would be on hiring fell from 39% in 2022 to 20% in 2023.

Training increased in priority from 16% to 18% and succession planning fell from 13% in 2022 to just 4% for next year, according to the survey, released Nov. 1.

Even with the shift in focus to retention, 49% of companies that responded indicated they plan to increase staff in 2023, with the same percentage saying they expect staffing to remain the same. Only 2% indicated they planned to reduce staff, but that is up from last year when no one indicated they planned to decrease staff.

There were also noticeable changes in salary responses for 2023, with 93% of businesses saying they planned to give a pay increase of at least 1% in 2023. The biggest increase came in the category of increasing pay by 5% or more, with 28% of respondents indicating they planned increases in pay by that amount or higher. That is up from 22% in 2022.

Fifty-three percent of businesses expected to give pay increases of 3% to 4% in 2023, down slightly from 54% last year. Twelve percent said they anticipate pay increases of 1% to 2%, down 6 percentage points from last year, with 7% saying they expected to issue no raises in 2023, up slightly from 2022.

Leto said compensation is only part of the retention strategy.

“I think that is certainly something when you’re seeing employees in high demand, companies are doing what they can to retain their staff, but it’s definitely not all of it,” he said. “Money is not the only reason to keep people.”

Leto said it’s a very candidate-driven market, even more so than in early 2020 because labor participation rates remain low.
“Clients are really having a hard time filling the seats they need to fill,” he said. “Demand for goods and products has never been higher, it seems, so they’re just trying to maneuver and figure all this stuff out.”

Even for those companies planning to retain workers or remain the same, they will have to plan to fill seats, Leto said.
“Turnover is inevitable here as we continue to move forward into the new year,” he said.

Leto said the survey also showed that the issue of flexibility and working remotely versus working in the office may be settling down a little.
According to the survey, 34% of companies said they plan to offer a hybrid work environment for employees, down from 59% in 2022. Of those responding, 39% said they will require employees to be in the office 100% of the time, with only 2% offering a fully remote work environment. The remaining 25% indicated an all of the above response, suggesting a mix of options being offered to employees.

Leto said even for those who require employees to be in the office 100% of the time, there will likely be greater flexibility than there was previously.
“I think we’re going to continue to see flexibility, even if the economy takes a turn for the worse,” he said. “I think employers have embraced that … and are more reasonable about appointments or children issues, so I do think that flexibility will be there to stay.”

He said some uncertainty remains, but it also appears that hybrid work arrangements have become more acceptable.

“We’re continuing to see employers ask their employees to come back to the office more often than not, so I think we could see a little shift there still, but I do think the hybrid is here to stay and things have settled down a little bit. I’m not sure where things will end up, but it feels like the flexibility piece is here to stay.”

Leto said the biggest thing for companies to remember moving forward is building relationships and communication.

“Not only the relationships and how leaders communicate within the company, it’s the bonds and relationships that co-workers build with each other,’’ he said. “If they’re in an environment where they have a trusting relationship with their leader, they’re making friends, they’re less likely to want to look for another position.”