US companies to hold steady on wage increases in favor of bonuses

Dive Brief:

Money might still be the top motivator for most workers, but based on new reports from Willis Towers Watson (WTW) and global insurance broker Gallagher, companies plan to keep wage increases at or below the current 3% average by offering personalized benefits, bonuses and other variable compensation. According to Gallagher's 2019/2020 Salary Planning Survey, companies of all sizes and industries are looking for ways to attract and retain workers who aren't motivated by the highest salaries when job hunting. And WTW's 2019 General Industry Salary Budget Survey showed that while employers plan to hold the line on wage increases, others plan to modestly increase discretionary bonuses or add separate promotional budgets to reward top talent in 2020.
Gallagher found that 32% to 35% of employers surveyed are reserving variable pay for executives and managers, while 22% to 25% are offering it to lower-level employees, including those eligible for overtime pay under the Fair Labor Standards Act. According to Gallagher, healthcare costs are a main reason why salary increases have capped at around 3%.
"Despite an extremely tight labor market, most employers are either not willing or fiscally unable to increase their fixed costs across-the-board by bolstering their salary budgets," said Catherine Hartmann, WTW's North America rewards leader. According to WTW, pay raises will continue to hover around 3% next year, but top performers can expect significantly higher increases than mediocre performers, said WTW.

Dive Insight:

The employee-driven labor market, with a 40-year-low unemployment rate, has pressured employers in some industries (particularly in manufacturing) to raise wages to attract and retain talent, ADP reported in July. Employees also repeatedly note in surveys that they would be likely to quit their current jobs for a higher salary elsewhere.

But as CEO of Gallagher Employee Benefits Consulting and Brokerage William F. Ziebell said, employers have other options. "It's important to understand that pay increases are not the only solution for attracting and retaining employees – particularly millennials," Ziebell said in a media release. "By leveraging tailor-made benefits and compensation strategies, organizations can create a deeper connection with their workforce and, at the same time, keep expenses in check. A few examples include flex-time or remote-working options, as well as health and wellness programs."

U.S. Bureau of Labor Statistics data has shown that wages have been steadily climbing from year to year, but so have benefits. In an interview with HR Dive, Mary Ann Sardone of Mercer said that while wages continue inching up, they're merely keeping up with consumer prices; therefore, employees might not be experiencing those increases. An Aon survey showed that workers' total earning possibility, or their potential earnings between salary and variable pay, has actually decreased in recent years.

The Federal Reserve Bank of San Francisco published a letter earlier this year noting that it "[does] not foresee a sharp pickup in wage growth nationally if the labor market continues to tighten as many anticipate." Also, employers may be reluctant to raise wages right away if the market suddenly collapses, experts previously told HR Dive. Talk of a looming recession may fortify this apprehension.