The latest compensation data from the US Labor Department’s Bureau of Labor Statistics show that total compensation for US employees has increased modestly over the past year, from $35.28 per hour worked in June 2017 to $36.22 per hour worked in June 2018. Wages and salaries averaged $24.72 per hour worked and accounted for 68.3 percent of these costs, while benefits averaged $11.50 and accounted for 31.7 percent. For private sector employees, compensation has increased from $33.26 per hour worked to $34.19. Wages made up $23.78 or 69.6 percent of that figure, while the remaining $10.41 (30.4 percent) consisted of benefit costs, in which the BLS includes supplemental pay.
While the percentage ratio of wages to benefits was unchanged from June 2017, benefit costs grew at a slightly higher rate than wages year-over-year, nearly 3 percent compared to 2.7 percent. This reflects a nearly 12 percent increase in bonuses and other forms of supplemental pay, from $1.18 per hour to $1.32; supplemental pay made up 3.8 percent of the total compensation mix in June 2018, compared to 3.5 percent a year earlier. Paid leave, including vacation time, also increased slightly.
Taking a longer-term view, over the past five years, benefit costs for private-sector employees have increased by over 20 percent, from $8.64 per hour worked in June 2013; whereas wages and salaries have increased 16 percent, from $20.47 that month. Supplemental pay, by comparison, has increased 65 percent from 80¢ per hour worked in June 2013. This trajectory reflects the increasing tendency we’ve observed among employers in recent years toward variable pay schemes that reward employees for high performance with one-time bonuses rather than standard annual raises.
“Bonuses and supplemental pay speak to labor market conditions, and workers are in a good spot to get a little more,” Ryan Sutton, a district president for staffing agency Robert Half, commented to the Wall Street Journal when the new BLS data was released on Tuesday. “Companies are still reluctant to move base wages up too much. It’s a lot harder to take that away than bonuses.”
Recent surveys have found that many US organizations are rethinking their compensation strategies to more precisely incentivize and reward performance, as well as to increase transparency around how those decisions are made. As Sutton pointed out to the Journal, rewarding high performers with bonuses gives organizations more flexibility from year to year in their compensation strategies, as a raise becomes “locked in” as part of an employee’s pay expectations going forward, whereas bonuses can be adjusted based on periodic fluctuations in performance.
Employers also favor variable pay strategies because research, including our work at Gartner, has shows that they tend to be more effective at motivating performance than standard annual raises across the board. There is a pitfall, however: When rewards accrue only to top performers and average employees are not rewarded for meeting expectations, this carries a risk of hurting engagement. Good (but not great) employees don’t mind when star performers earn more than they do, but they do rankle when their rewards are not differentiated from those of their low-performing colleagues.
The other trend reflected in this data is one toward leveraging benefits rather than wages to attract and motivate talent. Recent Gartner research has found that advertising competitive benefits in job postings can make these jobs more attractive to candidates and reduce the time it takes to fill a vacancy, but most postings don’t include information about specific benefits, while very few mention dental and vision, family, wellbeing, or work-life balance benefits.
Gartner Total Rewards Leadership Council members can view our pay transparency benchmarking report and sign up for one of our upcoming meetings on Creating Effective Benefits Communication and Communicating Pay in the Age of Transparency. Members can also check out our research on how the best companies reward employee performance here.