Dive Brief:
- Budgeted wage increases are holding steady for 2019, up slightly beyond what was originally predicted. Mercer's 2018/2019 US Compensation Planning survey of 1500 organizations was updated in November from the original poll to reflect economic changes. Results showed that the average total budget increase, including merit and promotional budgets, is expected to be 3.4%, a slight uptick from the 3.2% increase projected six months ago.
- In other poll findings, just 4% of organizations plan to redirect the tax savings into their salary increase budgets for next year, despite a cash windfall from the 2017 Tax Cuts & Jobs Act. More organizations reported being concerned about talent retention (78%) and attraction (73%), with just over half reporting a need to "pay for performance;" additionally, 88% of organizations still use individual performance as the basis for salary adjustments. Most organizations (80%) have an annual salary increase budget to stay market competitive and reward individual performance (77%), but less than half do so for talent retention.
- Mercer said that, as organizations think about what they will do to attract and retain talent in 2019, they might also think about revising their compensation and total rewards strategy.
Dive Insight:
The Mercer poll results released in August put the projected increase in merit salary budgets beyond 2.9% in 2019. However, overall, wage increases have remained stagnant, and are expected to stay relatively flat into the new year. In fact, workers' wages, in relation to inflation, dropped by 1.8%. With the rapidly rising Consumer Price Index, U.S. workers earned 1.4% less this year than they did in 2017.
How long employers will be able to keep wages — their biggest expense — low, while competing for talent is anyone's guess. If the labor market continues to tighten, as many predict, employers with stagnant budgets may be forced to find other ways to attract candidates, such as paid time off, flexible work schedules, career development opportunities and rewards programs. But employers should keep in mind that money is still the top motivator for job hunters. A reticent company could lose candidates to higher-paying organizations, various studies have shown.
Mercer's adjusted increase could hint to a beginning shift in employer perception. But continued economic uncertainty — especially as economists begin to hint toward the coming of a potential recession — could also keep employers from giving out large wage increases, experts previously told HR Dive.
