2020 Salary Budget Average Increase Forecast Is Just Above 3%

7/29/2019
 

Salary-increase budgets for U.S. employers are projected to grow next year by just 0.1 percent above the actual average budget increase for 2019, confirming that wage growth isn't accelerating much despite record-low unemployment.

U.S. salary budgets are projected to rise by an average (mean) of 3.3 percent in 2020, up from an actual year-over-year increase of 3.2 percent for 2019 and 3.1 percent in 2018, according to the WorldatWork 2019-2020 Salary Budget Survey: Top-Level Results, released in July. Survey data were collected through May 2019 from more than 6,000 responses, including from companies making no salary adjustments.

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

Total U.S. Salary-Budget Increases

Employee Category

Actual 2020 Mean

Actual 2020 Median

Projected 2019 Mean

Projected 2019 Median

Nonexempt hourly, nonunion

3.3%

3.0%

3.2%

3.0%

Nonexempt salaried

3.2%

3.0%

3.1%

3.0%

Exempt salaried

3.3%

3.0%

3.2%

3.0%

Officers/executives

3.3%

3.0%

3.3%

3.0%

All

3.3%

3.0%

3.2%

3.0%

Source: WorldatWork 2019-2020 Salary Budget Survey: Top-Level Results.

Salary-increase budgets measure the pool of money organizations are making available annually for base pay raises. Top performers generally receive bigger pay raises than average and low-performing workers.

Salary.com, which provides compensation data and analytics, similarly projects that salary-increase budgets will again see median growth of 3 percent in 2020 in all employee categories. The firm expects the following mean salary-budged increases for 2020:

  • Executives: a 3.2 percent rise, unchanged from 2019.
  • Other managers: a 3.3 percent rise, up from 3.1 percent.
  • Exempt employees: a 3.3 percent rise, up from 3.2 percent.
  • Nonexempt employees: a 3.3 percent rise, unchanged from 2019.

More than 1,600 HR professionals across diverse industries participated in Salary.com's 2019-2020 U.S. and Canada National Salary Budget Survey, which closed in June.

"In today's war for talent, market pay rates for many jobs are far outpacing annual salary-increase budgets," Salary.com Senior Vice President of Compensation Chris Fusco said in a news release. "Given that median increases have remained flat at 3 percent for nine years in a row, organizations competing for talent in today's market must think differently about how they allocate increases across top performers, employees with hot jobs and skills, and high-potential employees.

Focus on Variable Pay

As annual budgets for salary increases have not significantly increased year over year, organizations are directing more of their compensation budgets to variable pay programs. "In looking to reward and retain top talent, organizations that leverage performance-based variable pay programs hold a competitive advantage," Fusco said.

Variable Pay in the U.S. as a Percentage of Base Pay

Employee Category

Actual 2019 Mean

Actual 2019 Median

Planned 2020 Mean

Planned 2020 Median

Executives

39.4%

34.0%

39.0%

35.0%

Other managers

16.8%

15.0%

17.9%

15.0%

Exempt employees

11.9%

9.0%

12.5%

10.0%

Nonexempt employees

6.9%

5.0%

7.9%

5.0%

Source: Salary.com 2019-2020 U.S. and Canada National Salary Budget Survey.

A base pay increase in the 2.8 percent to 3.1 percent range "is no way to reward your best and brightest employees," said pay consultant John Rubino, SHRM-SCP, founder and president of Rubino Consulting Services, at the Society for Human Resource Management 2019 Annual Conference & Exposition in June.

Hourly Wage Gains

Another new report finds higher growth for U.S. workers' hourly wages than noted in the forecasts above. Hourly pay grew 4 percent annually as of the second quarter of 2019, increasing the average wage level by $1.09 to $28.54 an hour, according to the ADP Research Institute's Workforce Vitality Report for the second quarter of 2019, released July 24.

Annual hourly wage growth had been 3.8 percent through the second quarter of 2018, according to the ADP report, which is derived each month from a sample of approximately 250,000 companies and 18 million employees.

"The tight labor market is pushing companies to pay more," said Ahu Yildirmaz, co-head of the ADP Research Institute, an affiliate of HR and payroll software and services firm ADP. "As labor shortages are apparent in most of the sectors, businesses are holding on to their skilled workers by increasing their wages," she said.

The Midwest outpaced other regions with 4.5 percent wage growth, although the average hourly wage rate there was the lowest in the U.,S. at $26.57, ADP found. Workers in the South and Northeast had the lowest wage growth at 3.6 percent.

Hourly wage growth at large U.S. companies outpaces wage raises at smaller employers.

U.S. Hourly Wage Growth by Company Size

Company Size

Average Hourly Wages

Year-Over-Year Wage Growth

49 or fewer employees

$26.05

2.9%

50 to 499 employees

$28.49

3.2%

500 to 999 employees

$29.56

3.0%

1,000 or more employees

$29.91

5.1%

All

$28.54

4.0%

Source: ADP Research Institute second quarter 2019 Workforce Vitality Report.

Wage growth overall was driven by strong gains for workers in manufacturing (4.4 percent annual wage growth, $29.83 average hourly wage) and construction (4.4 percent annual wage growth, $28.65 average hourly wage), ADP reported.

In the service sector, annual wage growth was strongest in information (4.2 percent, $41.56 average hourly wage), trade (4.3 percent, $25.27 average hourly wage), and professional and business services (4.1 percent, $36.45 average hourly wage).

Lack of Sustained Growth

Inflation-adjusted "real" wages were only slightly up in the 12 months through June 2019, rising just 0.2 percent, meaning that "the average person cannot purchase much more than they could a year ago when wage growth is measured in relation to inflation," according to a report by PayScale, a compensation data and software firm.

"While there are some encouraging signs with nominal [before inflation] wages growing in select industries and job families, this increase is still not enough to impact real wage growth in a meaningful way," said Sudarshan Sampath, PayScale's director of research. "There are some bright spots in the economy, but many industries—those with a high proportion of blue-collar jobs, in particular—are still struggling," he said.

The second quarter 2019 PayScale Index, which evaluates pay figures from more than 300,000 employee profiles, showed U.S. wage growth of 2 percent year over year through the second quarter, significantly lower than the wage growth cited in the reports above. The index tracks changes in total cash compensation for full-time, private industry employees and education professionals in the U.S., including hourly and salaried workers.

Wage growth was stronger in select jobs and industries, such as media/publishing and retail jobs, where wages grew 2.8 percent before inflation year over year, and less so for blue-collar jobs across the country, such as manufacturing/production, where wage growth was just 0.9 percent.

Nominal wage growth also varied widely among regions and metropolitan areas, PayScale reported. In San Francisco, for instance, compensation grew by 4.5 percent year over year, and in Milwaukee by 3.5 percent, the index showed. But in Pittsburgh and Cleveland the increases were just 0.8 percent and 0.7 percent, respectively.

 
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