The results are in: US employers are still not budging on salary budgets. Average salary increase budgets for 2018 are holding steady at 2.8% and projected to be 2.9% for 2019, despite increasing concerns over attraction and retention of talent, a tightening labor market and a windfall of available cash from US Tax Reform.
Update (December 18, 2018):
In November, 32% of the original survey respondents provided updated salary information for 2019 to reflect changes based on current economic conditions. As a result, employers are projecting their average total increase budgets (which includes merit and promotional budgets) to be 3.4%, up slightly from 3.2% anticipated six months ago. Notably, these changes were reflected in promotional increases since merit increase budget projections remained the same at 2.9%.
Amongst employers who projected higher budgets, 31% cited “greater competition for workforce or anticipated labor shortages” as the primary reason for change, followed by “change in base salary structure or competitive positioning to market” (26%) and “business performance stronger than expected” (14%).
Here are the key findings from our 2018/2019 US Compensation Planning Survey to help you compare your company’s salary strategy to the market as you head into budget planning season.
US employers are holding the line on pay raises for employees, as merit salary increase budgets remain flat at 2.8% for 2018 and projected to be only 2.9% in 2019.
Despite a windfall of cash from December’s Tax Cuts & Jobs Act for most organizations, only 4% say they are planning to redirect tax savings into their salary increase budget for 2019.
About half of organizations budget separately for promotional increases with an average promotional salary budget of 1.2% of payroll and an average promotion salary increase as a percentage of base pay at 7.8%.
Most organizations (88%) still use individual performance to drive base salary adjustments and nearly half (48%) are using a five-level rating system to determine merit increases.
In planning for 2019, more organizations report concerns about retention (78%) and attraction (73%) of talent while less are reporting a need to deliver “pay for performance” (52%).
A majority of organizations primarily have an annual salary increase budget to remain market competitive (80%) and reward individual performance (77%), but less than half (46%) have it to retain employees.
Mercer’s US Compensation Planning survey is the largest and most comprehensive US salary increase survey available. More than 1,500 organizations provided data for the 2018-2019 survey from April to May of 2018. The full report provides additional analysis on salary increase budgets by industry, employee level, geography, and more. To purchase the full report, visit www.imercer.com/cps.
As you think about what it’s going to take to retain and build the workforce you’ll need to deliver on your future business objectives, it might be time to rethink your compensation plan and total rewards strategy. Read our latest blog post for four recommended actions you can take to take your annual compensation planning process to the next level.