2019 Salary Budgets Inch Upward Ever So Slightly

7/18/2018
 

Salary-increase budgets for U.S. employers next year are projected to grow by just 0.1 percent above the actual average budget increase for 2018, confirming that wage growth remains surprisingly stagnant despite record low unemployment.

U.S. salary budgets are projected to rise by an average of 3.2 percent in 2019, up from an actual year-over-year increase of 3.1 percent for 2018, according to the WorldatWork 2018-2019 Salary Budget Survey: Top-Level Results, released on July 10.

"Expectations for growth in U.S. salary budget increases have been mounting for many months," said Alison Avalos, director of research and certification at WorldatWork, an association of total rewards professionals. "However, despite significant tax-reform changes and a tight labor market, the one-tenth of a percentage point movement isn't the growth that was anticipated. This year's survey data gives us little reason to think that U.S. organizations intend to significantly invest more dollars into salary increases for 2019."

On a brighter note for workers, 2018 was the first time in four years that the U.S. national salary budget increase average was higher than 3 percent and also the first time over that period when the actual salary increase met the previous year's projection.

In the table below, the mean is the mathematical average while the median is the middle value after listing reported budget increase expectations in successive order. Outliers, or extreme values on either the high or low end, have the biggest effect on the mean and less effect on the median.



Total U.S. Salary Budget Increases by Employee Category

Employee Category

Actual 2018

Mean

Actual 2018 Median

Projected 2019 Mean

Projected 2019 Median

Nonexempt hourly nonunion

3.1%

3.0%

3.1%

3.0%

Nonexempt salaried

3.1%

3.0%

3.1%

3.0%

Exempt salaried

3.1%

3.0%

3.2%

3.0%

Officers/executives

3.0%

3.0%

3.2%

3.0%

All

3.1%

3.0%

3.2%

3.0%

Source: WorldatWork 2018-2019 Salary Budget Survey: Top-Level Results. Survey data collected through May 2018 with 5,499 responses including companies making no salary adjustments.

In Canada, the average actual 2018 salary budget increase was 2.9 percent (mean) and 3 percent (median), WorldatWork reported. For 2019, Canadian employers project a salary budget increase of 3 percent (mean and median).

While salary budget increases represent additional funds that employers plan to spend on employee base salaries, they don't necessarily represent the average salary increase that workers will receive. Raises above the projections would likely go to top performers and those with in-demand skills.

The WorldatWork 2018-2019 Salary Budget Survey full report, covering data on U.S. base salary increases, merit budgets, salary structure adjustments, promotional increases and variable pay plans, will be available in August.

Lower Raises at Smaller Business

"Despite the tightening labor market conditions, we're seeing only modest levels of wage growth" among small U.S. businesses, said Martin Mucci, president and CEO of Paychex, a payroll technology firm. "With the unemployment rate at historic lows, we'd expect to see accelerating wages in this type of employment market."

The Paychex Small Business Employment Watch for June showed that the pace of annual growth for hourly earnings among the firm's approximately 350,000 small-business clients fell to 2.47 percent—the first time since early 2016 that wage growth has been below 2.5 percent.

However, there were regional differences. At 3.2 percent, hourly earnings growth in the West outpaced the rest of the country, with growth rates in the Midwest and South more than a full percentage point behind.

[SHRM members-only HR Q&A: How can I locate resources for salary survey data for all industries and occupations?]

Inflation Ate My Raise

"Benefits of recent changes to tax policy are largely reaped by business owners, not employees. Many corporations are using the additional money to buy back stock rather than increase wages," said Katie Bardara, vice president of data analytics and chief economist at PayScale, a provider of on-demand compensation data and software.

Another factor is that employers are opting for variable compensation such as bonuses instead of increasing salaries or hourly wages, because variable compensation is not a permanent adjustment and doesn't compound over time, she said.

PayScale's Q2 Wage Index report, released in July, found that due to the rapid rise of the consumer price index (CPI), workers—including hourly and part-time employees—earned 1.4 percent less in real (inflation-adjusted) wages than they did one year ago. PayScale's findings draw from its data on more than 35 million employee profiles.

Bardara also noted the exceptions that others pointed out. "We are seeing higher wage growth for certain jobs as the tightening of the labor market continues and demand for certain talent outpaces supply," she said. "Our current strong economy disproportionately benefits employees that are in demand, in addition to shareholders and executives, while the average worker is left behind."

Inflation could consume a larger share of workers' wages going forward. The CPI's cumulative growth in June from a year earlier hit 2.9 percent, the highest level since February 2012, theDepartment of Labor said on July 12.

"For the second month in a row, annual inflation fully offset workers' average hourly wage growth in June, leaving real hourly earnings flat from a year earlier, despite falling unemployment and a generally strong economy, The Wall Street Journal reported.

ERI Economic Research Institute, a compensation analytics firm, earlier this year posted a commentary with a decade-by-decade look at real salary increases in the U.S., showing the percentage of salary increase budgets less the percentage change in the CPI through 2016:

Decade

Average Real Salary Increase

1980s

2.12%

1990s

1.47%

2000s

1.22%

2010s

1.16%

Source: ERI Economic Research Institute.

"During 2017, the real wage increase reduced even further to 1 percent. In 2018, wage growth is projected to drop to 0.7 percent assuming budgets remain stable at 3 percent," wrote Linda Cox, global total rewards expert at ERI.

Employers Beware

Slow or even nonexistent (after inflation) pay raises could mean higher turnover rates are ahead. A new survey by specialty recruitment firms Accounting Principals and Ajilon exploredworkers' attitudes toward leaving or staying at a job and found:

  • Compensation ranked as the most important factor that employees consider when deciding to accept a job offer.
  • 43.2 percent of workers would be enticed to leave their company if another one offered a better salary or other pay.
  • More than a quarter of employees (25.7 percent) are actively seeking new job opportunities and over half (55.5 percent) are passively open to new job opportunities.

The survey of 1,004 U.S. full-time employees in sales, office and management/professional occupations was conducted from April 24 to May 8.

"The cultural norm for an acceptable length of time to stay at a company has shifted," said David Alexander, president of Accounting Principals and Ajilon. "This means employers need to continually evaluate whether they're fostering an environment that retains top performers."

 
 
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