While the numbers may not be exactly the same, surveys from two HR consulting giants indicate employers will remain fairly stingy with pay raises in 2019, the tightening talent market and corporate tax cuts notwithstanding.
For example, Willis Towers Watson Data Services’ 2018 General Industry Salary Budget Survey predicts “slightly larger” pay raises for 2019, with the emphasis on slightly. It found that the 814 U.S. employers surveyed project to give exempt, non-management employees (i.e., professional) average pay increases of 3.1 percent in 2019, compared with 3.0 this year.
And Mercer, in its 2018/2019 US Compensation Planning Survey, reports that employers plan salary increase budgets to be 2.9 percent in 2019, up only a single percentage point from 2018.
Both Willis Towers Watson and Mercer note that these slim pay-raise projections will happen as the unemployment rate has taken a dive and the job market tightened. In addition, Mercer’s report says it also is happening as high rates of workers are voluntarily leaving their current jobs.
Sandra McLellan, North America Rewards business leader at Willis Towers Watson, says that while companies have been able to hold the line on raises, times are changing in one way. “Many companies are establishing slightly larger salary budgets, while at the same time focusing on variable pay such as annual incentives and discretionary bonuses to recognize and reward their best performers,” she says.
McLellan is referring to the fact that the Willis Towers Watson survey also found employers are projecting modestly larger discretionary bonuses next year in an effort to reward and retain the best performing employees.
In 2018, for example, employees receiving the highest possible performance rating were given an average increase of 4.6 percent, 70 percent higher than the 2.7 percent increase for those getting an average rating.
“A growing number of companies are coming to grips with the fact that employees are more willing to change companies to advance their careers and to talk openly about their pay,” McLellan says. “As a result, organizations are facing increased pressure entering next year to devise a focused strategy and plan on how to allocate their precious compensation dollars or risk losing some of their best talent.”
According to Mercer, which surveyed 1,500 companies from various sectors in its study, employers continue to worry about talent attraction and retention. At the same time, employees cite fair, competitive pay as their top priority. Even with those storm warnings, the new study shows employers are standing pat on compensation 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,” says Mary Ann Sardone, partner and Mercer’s North America Rewards practice leader.
Sardone adds that by continuing to hold the line on salary increase budgets, employers risk losing their high performers to competitors who are spending more dollars to attract key talent–because it’s easier to justify.
On a related issue, Mercer’s survey found that not even the windfall of newly available investment dollars from December’s Tax Cuts and Jobs Act has moved the pay needle. Mercers found only four percent 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 percent) plans to increase their budget by less than one percent of payroll. And 68 percent say they will not direct savings into their salary increase budget.
“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,” Sardone says, adding that as the market talent trend continues, 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,” she says.