A recent report from Mercer aimed to understand the state of salary budget increases for 2019 as well as projections for 2020. A comparison with the same report from previous years showed similar findings: low to moderate wage growth. I recently spoke with Mary Ann Sardone, U.S. Talent Solutions Leader at Mercer, to explain the results.
You can read the full report here.
Very low unemployment rates have continued for several years now, which have led to a shortage of talent for organizations in general. Historically, similar job climates have resulted in considerable wage growth to increase competition. However, this survey found merit-based wage growth stayed steady at or near 2.9% over the last few years. Sardone characterized the situation by saying, “When we say merit increase budgets are remaining flat, it means employees are still getting raises like they were last year at the same rate.”
Why are organizations not increasing merit-based wages when competition for talent is currently so fierce? Sardone believes that’s because “we see there is a trickle in of other increases throughout the year for different reasons.” In other words, total salary budgets have increased in 2019 (by 3.6%), just not merit-based budgets. She explained that companies are “delivering increases off cycle to combat people leaving or someone coming in at a higher pay rate, and they have to enable and ensure that pay is equitable.” She adds, “There is money being delivered, but in the budget.”
Another reason that overall budgets saw a better growth in 2019 than merit increases involves pay equity. A number of factors like the EEO-1 Component 2 reporting from this year and a general focus on equitable pay have led companies to take a closer look at whether their pay structure is fair. Sardone explains that equitable pay analyses “based on gender or protected classes” result in companies “finding that they are correcting some of those wrongs through additional pay adjustments. So, pay adjustments are trickling in through other ways.”
Why Are Merit-Based Wages Flat?
On the surface, these findings look like companies are putting money in to correct pay equity instead of putting money into merit-based increases. I asked Sardone why regular employees should get flatter wage increases because of the equity-related mistakes of their organizations. She suggested that the situation is a little bit more complicated than that. Companies budget their merit increases at around 2.9% to handle a certain volatility in other adjustments like “the dynamic nature of the market, which most every company has had to keep up with through their pay raises, but often they don’t really know how much adjusting they need to do until they bring in a new outside hire and realize they have to pay them X amount more,” says Sardone. For this reason, companies are being more cautious with their merit-based budgets in order to absorb other costs throughout the year.
The lower merit-based increases are balanced with other spending increases, such as wellness programs, says Sardone. She says, “There is a lot of work being done in companies today around investments in well-being programs because they are acknowledging that employees’ well-being is good for employees and also good for business.” These are just some of the benefits that are regularly being added to core benefit programs.
Promotional Budgets are Increasing
The report found that promotional budgets have ticked up to 9.3%. “So, when employers are promoting, they are delivering more wage growth through promotions than they have in the past,” explains Sardone, to meet the job market pressures because “it’s just so hard to find people on the outside market.”
HR Benefit Communications Are Essential
Some employees may not appreciate such low merit-based increases, particularly if they are not getting promotions. If organizations are growing salaries overall, then they should consider explaining exactly how to their employees if they want to offset negative feelings. Sardone says they should communicate “not only the pay part of the equation but [also] the other rewards that are associated with being employed at that company because a lot of money is spent on a lot of other programs besides pay.” This includes things besides well-being, like “technology assessments, career development, and training opportunity investments,” she says.