Employers predict average 2.6% merit increases next year, up from 2020

Dive Brief:

Merit increases will rise to an average 2.6% in 2021, U.S. employers responding to a recent Salary.com survey predicted. That number would represent an increase over 2020's 2.4% but is still down from 2.8% in 2019, according to the data, released Sept. 3.
2021 median salary increase budgets are expected to remain consistent at 3% — a level that has remained steady for 10 consecutive years, the organization said. Additionally, in 2020, the average salary structure, or range, increase fell to 1.3%-1.6% range after remaining at 1.7%-2% range for most workers in 2018 and 2019, the survey found. This year's range is generally expected to stay the same in 2021.
Performance or merit-based pay remained relatively stable, despite upheaval from COVID-19, though Chris Fusco, senior vice president of compensation at Salary.com, said in the press release that salary plans could be "significantly altered by 2021" depending on the course of the pandemic.

Dive Insight:

While salary plans may still shift, at least one other study found that salary increases are on the horizon next year for employees at many U.S. companies.

The 2020 General Industry Salary Budget Survey conducted by Willis Towers Watson (WTW) Data Services and released Aug. 17 found that only 7% of the companies surveyed are not planning pay increases in 2021, "down significantly from 14% this year," according to the global advisory firm. Based on WTW's survey, performance-based short-term incentive awards across all groups are expected to remain steady in 2021, aligning with Salary.com expectations.

"Much to our surprise, in 2020 the average variable pay as a percentage of base salary remained consistent with previous years, and as of June 2020, was projected to remain consistent in 2021," Fusco said in a statement. Notably, performance-based pay continues to play a large role in salary increases; according to the WTW survey, "star" employees were granted an average salary increase of 4.7% compared to the 2.8% increase for workers with an average rating.

As pay discussions between employees become more common, employers may also be considering their pay transparency strategies. Employers should react to incidents of pay disclosure by welcoming open dialogue about equitable pay, according to experts.