Survey: Business Optimism Could Translate to Bigger Raises This Year

Survey: Business Optimism Could Translate to Bigger Raises This Year

Previous surveys have predicted that most US employees will receive a small increase in their base pay this year, averaging about 3 percent, though high performers can expect a bit more as organizations shift their compensation strategies toward greater differentiation. That 3 percent raise appears to have become standard in recent years for the average employee, as a 4 or 5 percent annual raise once was.

A new survey of CEOs and CFOs from PwC, however, suggests that raises might be a bit higher than expected this year: The consultancy’s Q4 2017 Trendsetter Barometer report, based on interviews with 300 CEOs and CFOs during the last quarter of 2017, found that these leaders expect to raise wages by an average of 4.27 percent in the coming year, compared to the 3.39 percent figure PwC found in Q3 and just 2 percent a year ago. The last time panelists projected average wages would rise above 4 percent was during the second quarter of 2007, the report notes.

Plans for growth are also on the upswing, with 56 percent of the leaders surveyed saying they intended to hire new employees in the coming year, compared to 49 percent who said so in Q3. PwC attributes these bullish plans for 2018 to higher levels of business confidence and optimism about the future of the US economy, with 79 percent of leaders expressing optimism, a notable increase from 59 percent at the end of 2016.

Interviews for the report took place between October 2 and December 29, 2017, so these views don’t necessarily reflect the impact of the massive corporate tax cut passed by Congress in December, PwC notes. While some major employers have announced plans to spend a chunk of their tax cut on raises, it remains to be seen whether the tax reform package has a significant impact on wage growth. One reason for this is that more employers appear to be passing their tax savings along to employees in the form of one-off bonuses, rather than raises that will commit them to paying higher wages in years to come, Washington Post columnist Jena McGregor points out:

The human resources consulting firm Willis Towers Watson, in an analysis of public announcements made by employers, found 88 companies as of Jan. 12 that have committed to making one-time bonuses ranging from $150 to $3000, compared with 35 that have made adjustments to their minimum wage and 10 or so others that have announced some other form of compensation or salary change.

A list compiled by the conservative group Americans for Tax Reform promotes even more companies that have announced financial adjustments for employees, with roughly three times as many citing bonuses as wage increases. And a survey from December by Aon found that 17 percent of employers said they would offer workers a bonus as a result of the tax cut, compared with 11 percent who said they expected to increase salaries.

Employers may also use their tax cuts to boost rewards other than cash wages. In particular, Anne Tergesen reports at the Wall Street Journal, some companies are planning to increase the level at which they will match employee contributions to their 401(k) plans, while others have said they will make one-time contributions to these plans. According to recent data from the mutual fund company Vanguard, employer contributions to retirement accounts have risen considerably over the past few years. This trend reflects an increased awareness among employers that it can be bad for business when older employees can’t afford to retire.