Salary increases have been fairly stagnant lately. That has been a surprise to many analysts due to typically strong correlations between low unemployment and wage growth. A new study shows that stagnation is likely to continue.
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Organizations are holding the line on pay raises for US employees. According to Mercer’s 2018/2019 US Compensation Planning Survey, salary increase budgets for 2018 are 2.8%—no change from 2017—and projected to be only 2.9% in 2019, despite noticeable factors like the tightening labor market and a high rate of workers voluntarily quitting their jobs. According to Mercer’s 2018 Global Talent Trends Study, a majority of organizations are expressing concerns about attraction and retention. Fair and competitive pay is cited as the number one priority for employees. Even so, this new study shows organizations are not budging on budgets.
“Unemployment is falling. Job openings are increasing. Employees are gaining confidence in the labor market. Yet, companies are still not investing in base salary, even though it’s the reward employees value the most,” said Mary Ann Sardone, Partner and Mercer’s North America Rewards Practice Leader. “By continuing to hold the line on salary increase budgets, they risk losing their top performers to competitors who are spending more dollars to attract key talent because it’s easier to justify. It’s an investment issue that companies should reconsider as they look toward building their workforce for the future.”
According to Mercer’s recent survey, even the windfall of newly available investment dollars from December’s Tax Cuts and Jobs Act (TCJA) is not enhancing the compensation spend for most companies. Mercer’s survey finds that only 4% of organizations have redirected some of their anticipated tax savings to their salary increase budgets. Moreover, just more than half of this small group of organizations (53%) plans to increase their budget by less than 1% of payroll.
“While employers initially responded to the tax rate drop with one-time spot bonus awards and some proactive minimum wage increases, little of this money is being invested in the annual pay increase,” said Ms. Sardone. “As the market continues in the same trajectory, those employers that focus on the budget needed for their strategic workforce plan rather than just following the pack will stand out. In today’s labor market where employees have choices and competitors are offering a premium for new hires, employers may need to up their game to retain their top talent.”
More Ways to Invest in Talent
With budgets for base compensation increases flat, programs beyond contractual rewards (compensation and benefits) can help enhance the employee experience. These programs, which arm the organization with a differentiated and unique value proposition, are becoming another way to effectively compete for talent in the future of work. By supporting career development and training as well as assistance for financial, physical, and emotional wellbeing, organizations can advance employees’ careers in meaningful ways, offer a greater sense of purpose, and provide a more compelling work experience overall.
“Although the full value proposition is on the table for investments, employers should proceed with caution,” said Ms. Sardone. “Compensation is still the top priority for employees. If you get it right, the other programs can be great differentiators. If you get it wrong, the rest may not matter.”
Survey Methodology
Mercer’s 2018/2019 US Compensation Planning Survey, which is the largest survey of its kind and has been conducted annually for more than 25 years, includes responses from more than 1,500 mid-size and large employers across the US. The survey results capture seven employee segments: executive, management, professional (sales), professional (non-sales), office/clerical/ technical, trades/production/service, and unionized employees across multiple industries.