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Employers Retooling Salary Increase Budgets for 2019

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With the tight labor market, low unemployment and booming economy, some employers are starting to reevaluate their compensation budgets in an effort to reward and retain their top employees.

According to Mercer's “2018/2019 US Compensation Planning Survey Update,” employers are projecting their average total increase budgets (which includes merit and promotional budgets) at 3.4%, which is up slightly from 3.2% anticipated six months ago. Notably, of the about 30% of employers projecting higher total increase budgets, changes were primarily reflected in promotional increases, whereas merit increases remained the same at 2.9%.

In WorldatWork’s “2018-2019 Salary Budget Survey,” respondents reported a 3.1% average total salary increase budget while predicting a 3.2% increase for 2019.

The top reasons cited in the Mercer study for higher projected budgets are: greater competition for workforce or anticipated labor shortages (31%); change in base salary structure or competitive positioning to market (26%); and business performance stronger than expected (14%).

“As employers evaluate their future workforce needs, they are starting to think and act differently than they have in the past,” said Mary Ann Sardone, partner and Mercer’s North America Rewards practice leader. “Concerned about retaining employees in an environment with high competition and low unemployment, higher promotional budgets signal more investment in career growth and promotion from within.”

High rates of employees voluntarily leaving their jobs may be a factor, as well. According to Mercer’s “2018 U.S. Turnover Study,” the top reasons that employees voluntarily leave organizations are base pay, promotion opportunity and career change.

“With a tight job market and confidence in the economy, voluntary turnover is at an all-time high,” Sardone said. “It is important that employers recognize the critical talent they have by getting pay and promotions right — or they risk losing employees to competitors that may offer better salaries and the opportunity for more career growth.”


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