For the ninth year in a row, median annual salary increase budgets are expected to remain flat at 3% for the upcoming year, according to results from Salary.com’s 9th annual U.S. and Canada National Salary Budget results.
Despite a competitive job market and turnover rates of nearly 20% this year, survey results demonstrate that participating organizations have not felt a sense of urgency to adjust how they’re budgeting for employee salary increases year-over-year since the Company began collecting data in 2011. And, with the 2020 outlook indicating more of the same, this trend of 3% increase budgets seems unlikely to change – even as organizations face tough labor markets.
“In today’s war for talent, market pay rates for many jobs are far outpacing annual salary increase budgets. Organizations looking to attract great candidates and retain high-performing employees will need to consider how to maximize the impact of their increase budgets, and leverage other pay programs to ensure their workforce’s pay stays externally competitive,” said Chris Fusco, Senior Vice President of Compensation at Salary.com. “There is an ever so slight but steady upward trend in the means for salary increase budgets, indicating that some companies may now feel a need to pay closer to 3% instead of the 2.0 or 2.5% they may have paid last year. But given that median increases have remained flat at 3% 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.”
Variable Pay Programs are Becoming More Common
As annual increase budgets have not significantly increased year-over-year, employers may be turning to other total rewards programs to keep up with the market. Salary.com’s 2019-2020 US and Canada National Salary Budget Survey shows a 13% increase in variable pay for executives and an 11% increase for exempt employees from 2018 to 2019, returning variable pay levels to match 2017 highs. This aligns with data from our Pay Practices and Compensation Strategy Survey, in which 77% of companies in the U.S. reported they are using variable pay programs as part of their total rewards packages, with an additional 9% of participants saying they definitely will or could adopt a variable pay plan within the next two years.
“After a decrease in variable pay in 2018, these results indicate that organizations are now reinvesting in variable pay programs,” said Fusco. “In looking to reward and retain top talent, organizations that leverage performance-based variable pay programs hold a competitive advantage. Incentives like this are shown to engage employees and reduce turnover, and can help ensure total pay remains competitive with ever-changing market conditions.”
Fusco notes that every organization has its own methods for keeping pay competitive, but predicts that if merit increase budgets stay at 3% over the next decade, HR professionals will need to explore new ways to combine merit increases and other incentives to keep employees happy.
US and Canada National Budget Survey Overview and Methodology
Over 1,600 human resource professionals across 20 diverse industries (including healthcare, manufacturing, financial services, and education) participated in this year’s survey, which closed June 2019. Now in its ninth year, Salary.com’s U.S. and Canada National Salary Budget Survey is designed to collect critical data on how organizations are budgeting for salary increases over the next year.