Human Capital & Careers

Employee Pay Raises to Hold Steady Next Year

Salary hikes for most groups of workers will remain at 3%, the same as in recent years, a study finds.
David McCannAugust 17, 2017
Employee Pay Raises to Hold Steady Next Year

U.S. companies expect to hold the line on pay raises for employees in 2018, according to a survey of 819 employers by Willis Towers Watson.

The survey found that virtually all respondents (99%) are planning to hike compensation next year. Salaries for exempt (i.e., professional) non-management workers are forecast to be bumped up an average of 3%, the same increase they’ve received in each of the past three years.

Employers are also planning 3% average salary increases for management and nonexempt employees. Executives can expect marginally larger raises — 3.1% — in 2018, although that would be slightly less than they received this year and in 2016.

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“Most companies are not under any significant pressure to increase their salary budgets in the near term,” says Laura Sejen, managing director for human capital and benefits at Willis Towers Watson.

However, the survey also found that employers continue to reward their best performers with significantly larger raises, in order to retain them and strengthen the company’s commitment to paying for performance. The weakest performers will get “minimal increases,” Sejen says.

Specifically, the survey found that exempt employees who received the highest performance ratings were granted an average salary increase of 4.5% this year, about 73% larger than the 2.6% increase given to employees receiving an average rating. Companies gave average hikes of 1% to workers with below-average performance ratings.

The high performers actually are doing even better than what’s reflected by their salary increases. “Companies are relying more on variable pay, such as annual incentives and discretionary bonuses, to recognize and reward their best performers,” says Sejen.

Overall, though, annual performance bonuses, which are generally tied to company and employee performance goals, are projected to hold steady or decline slightly in 2018 for most employee groups. Exempt employees are projected to receive bonuses that average 10.5% of salary, roughly the same amount companies budgeted for this year.

Discretionary bonuses, generally paid for special projects or one-time achievements, are also projected to hold relatively steady compared with bonuses awarded last year and budgeted for this year. That is fairly consistent with recent discretionary bonus increases; for example, 72% of companies paid discretionary bonuses in 2015 versus 75% last year.

“Employers are rethinking how to administer limited salary budgets,” says Sandra McLellan, Willis Towers Watson’s rewards practice leader for North America.

Some organizations are moving away altogether from differentiating increases based on an employee’s previous-year performance, while others are focusing on rewarding employees for skills development, McLellan adds. “So while organizations may be forecasting 3% increases, the landscape of how and when they are giving increases varies considerably.”