Despite historically low levels of unemployment and high demand for labor, salary budget surveys for 2018-2019 suggest that US wages will grow on average by just about 3 percent both this year and next year, continuing a trend of lackluster raises despite labor market conditions that theoretically should push earnings higher. The WorldatWork 2018-2019 Salary Budget Survey projects a mean average wage growth of 3.2 percent and a median 0f 3.0 percent next year, little changed from 3.1 percent (mean) and 3.0 percent (median) in 2018.
Employers are continuing to devote a significant share of their salary budgets to variable pay, WorldatWork found, but these budgets also aren’t growing, SHRM’s Stephen Miller observes:
Some 85 percent of U.S. employers gave out performance-based bonuses or other forms of variable incentive pay in 2018, the survey shows, and the amount of variable pay budgeted and paid out, for all employee categories, has been stable for several years. When total rewards professionals were asked about their variable pay budgets for 2019, their responses were virtually unchanged from the amounts budgeted for this year and … for 2017.
Alison Avalos, director of membership and total rewards strategy at WorldatWork, tells Miller that one reason why these budgets aren’t increasing is that employers are increasingly using benefits to attract and retain talent instead of cash rewards, including intangible benefits like professional development opportunities and purpose-driven organizational cultures that align with employees’ personal values.
Similarly, Willis Towers Watson’s 2018 General Industry Salary Budget Survey finds that US professionals can expect raises of 3.1 percent on average next year, compared to 3.0 percent this year. Wage growth has leveled off at around 3 percent per year over the past decade. Their survey also found that star performers would once again see higher increases next year, and registered a slight increase in budgets for discretionary bonuses:
The number of companies handing out holiday bonuses has taken a dive this year, Stephen Miller reports at SHRM, citing a new report:
The latest annual Holiday Bonus and Hiring Survey by Accounting Principals, a nationwide staffing firm for finance professionals, polled more than 500 HR or hiring managers across a range of industries about their holiday rewards. The survey, conducted from Aug. 25 through Sept. 6, showed that for the 2017 holiday season:
- 63 percent of companies plan to give their employees a monetary holiday bonus—smaller amounts may be put on a gift card—which is down from 75 percent in 2016.
- Those receiving a holiday bonus will see the average dollar amount rise by 66 percent to $1,797, up from $1,081 in 2016. The average holiday bonus in 2015 was $858.
- 38 percent of companies are giving donations to charities selected by employees in lieu of an end-of-year bonus.
This is a notable reversal from last year’s trend, when the percentage of companies giving out monetary holiday bonuses grew from 67 to 75 percent and the growth in dollar amount was more modest. Miller interprets this year’s change as reflecting the impact of more companies shifting to variable pay plans, in which bonuses are based on individual as well as organizational performance and are usually paid out in the first quarter of the year rather than in December.
Recent surveys of US organizations on their 2018 salary budgets show that more of them are moving toward an increasingly differentiated compensation strategy, with high performers getting rewarded with variable incentive pay and bonuses, while average and low performers receive smaller annual raises, or sometimes none at all. Employers like these more targeted pay schemes because research, including our work at CEB (now Gartner) shows that they tend to be more effective at motivating performance than routine raises for everyone.
The other reason for the increasing popularity of variable pay is that it gives employers more flexibility in their compensation budgets from year to year. It is practically impossible to take back across-the-board raises, or decline to give them when employees have come to expect them each year, without incurring a huge hit to employee morale. Variable raises and particularly bonuses tied to individual performance are more malleable: Giving an employee a substantial bonus for the great work they did this year this does not obligate you to give them that bonus again next year.
While beneficial to employers, and arguably good news for top performers, this change does have a downside for employees, making their incomes less predictable and leaving them more vulnerable to macroeconomic shifts. The other challenge here is that focusing raises exclusively on top performers can leave less room to differentiate rewards between average and low performers. As our own Brian Kropp tells NBC News’s Martha C. White, this carries its own set of risks for employee engagement: