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Larger Pay Raises Reserved for the Few

Employees in the United States who are hoping for larger pay raises next year may be disappointed.

 

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Salary increases, on average, are expected to hold steady in 2020 for exempt, non-management employees (3.1%), management employees (3.1%), nonexempt hourly employees (3.0%) and nonexempt salaried employees (2.9%), according to Willis Towers Watson’s “2019 General Industry Salary Budget Survey” of 858 organizations.

“Despite an extremely tight labor market, most employers are either not willing or fiscally unable to increase their fixed costs across-the-board by bolstering their salary budgets,” said Catherine Hartmann, North America rewards leader at Willis Towers Watson. “Instead, many companies are doubling down on providing significantly larger market adjustments to employees in high-skill roles and selective pay raises to their top performers. Some employers are also recognizing the contributions of these employees with better annual incentives and discretionary bonuses.”

WorldatWork’s “2019-2020 Salary Budget Survey” found that salary increase budgets in the U.S. grew slightly to a 3.2% average (median: 3%), which met the previous year’s projections. Contrary to Willis Towers Watson’s findings, the data revealed that salary budget increases are again expected to rise to 3.3% in 2020.

“Differences in survey methodologies can contribute to variances in survey findings, but the average salary increase budgets reported in both surveys are in alignment”, said Alison Avalos, CCP, CBP, GRP, director of content at WorldatWork. “Exceptionally low unemployment, climbing minimum wage rates and increased investments to ensure fair and equitable pay practices are likely to contributing to steady trends in salary budget growth.”

Willis Towers Watson’s survey found that organizations are budgeting slightly smaller increases for executives (3.1% in 2020 versus 3.2% in 2019). Virtually all companies (96%) plan to give raises come 2020, the same percentage as 2019. However, more companies are formalizing their promotional increase budget (30%), which is up significantly year over year. Pay raises have hovered around 3% for the past decade. The last year employers provided larger increases was 2008 (3.8%).

Additionally, companies continue to reward their star performers with significantly larger pay raises than average performing employees. According to the survey, employees receiving the highest possible rating were granted an average increase of 4.6% in 2019, 70% higher than the 2.7% increase granted to those receiving an average rating.

The survey found companies are projecting discretionary bonuses — generally paid for special projects or one-time achievements — will average 5.9% of salary for exempt employees, compared with 5.3% of salary granted for bonuses in 2018. Slightly larger discretionary bonuses are also planned for managers and salaried, nonexempt employees. Annual performance bonuses, which are generally tied to company and employee performance goals, are projected to decline modestly for most employee groups compared with bonuses paid last year.

About the Author

Brett Christie is a staff writer at WorldatWork.


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