Looking for signs of a vigorous economy and a frame of reference for determining 2019 pay raises? You’ll find them in several major salary surveys (thousands of companies of all sizes across many industries) that have been conducted over the past few months.
Since 2010, the national unemployment rate has steadily declined from nearly 10 percent to near 4 percent, according to the Bureau of Labor Statistics. When unemployment is low, historically, salary adjustments have been strong, beating increases in the cost of living.
Projected Merit Compensation Changes
Several major studies are in agreement as to where 2019 salaries are heading. According to the WorldatWork 2018-2019 Salary Budget Survey: Top-Level Results, U.S. salary budgets are projected to rise by an average of 3.2 percent this year, up from an actual year-over-year increase of 3.1 percent for 2018. This would represent the highest increase since the 2008 recession, but the minor uptick isn’t too impressive, considering tax reform changes that have gone into effect this year, along with rising inflation of 1.6 percent and the tight labor market. In fact, fewer than 5 percent of U.S. organizations plan to pass tax savings on to employees via salary increases. On the positive side, however, 2018 was the first time in four years that the national average salary budget increase was higher than 3 percent and it appears we will sustain that level in 2019.
As for distribution of merit-based pay increases, the survey projects 4.1 percent increases for high performers, 2.8 percent increases for middle performers, and 0.6 percent for low performers. The Willis Towers Watson General Industry Salary Budget Survey had similar projections, with 4.6 percent increases for high performers and 2.7 percent increases for average performers.
Aon’s 2018 U.S. Salary Increase Survey concurs with WorldatWork, projecting base pay budgets to increase to 3.1 percent in 2019, and Mercer’s 2018/2019 US Compensation Planning Survey, similarly forecasts that merit salary increase budgets of 2.9 percent in 2019, after remaining steady at 2.8 percent from 2017-2018.
Unpredictability in Variable Pay
Aon’s projections come with a significant caveat: Variable compensation, including incentives, signing bonuses, and awards, is expected to drop to 12.1 percent. This would be the largest drop since 2010. The net result would bring the total compensation percentage of company budgets down from 15.5 percent in 2018 to 15.2 percent in 2019. Willis Towers Watson is more optimistic in this regard, projecting average variable pay increases for nonexempt salaried employees (from 6.6 percent to 7.1 percent as a percentage of base salaries). Exempt nonmanagement and nonexempt hourly workers project to hold steady from 2018 levels.
What Matters to Workers?
For employers, investing in merit increases is worthwhile when their employees are satisfied with their compensation. Indeed conducted a survey to learn about how workers feel about their salaries, and found some discomfort. Only 18 percent of workers say their life is comfortable at their current salary level and 61 percent say they would need at least $6,000 more to live comfortably.
Interestingly, Indeed found differences between men and women with regard to asking for raises, and this corroborates the KPMG study findings detailed in our recent article, Women, Risk Aversion Could Be Hurting Your Career. Half of the women Indeed surveyed say they plan to ask for more money, compared to 56 percent of men, and men are planning on asking for higher raises. Of the women looking for a raise, 57 percent plan to ask for a raise of 5 percent or less, while 49 percent of men will be requesting a 6 to 10 percent raise.
Planning for Your Salary Discussions
Knowing the facts is paramount for employers heading into salary discussions. Understanding the national projected merit pay increases, distribution by performance level, variable pay changes, and how workers generally feel about their incomes will go a long way in your preparations. The final piece of the puzzle will be a comparison of your pay structures to that of competitors, especially in the DFW area. If you would like to learn more about that, contact Imprimis Group at (972) 419-1700.