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Salary Increase Budgets Decline during the Pandemic

The global pandemic has impacted salary budget planning for the first time in 12-years.  The last time that U.S. employers saw a decline in salary budget increases was during the Great Recession of 2008-2009. WorldatWork’s 2020-2021 Salary Budget Survey, conducted from May through June 2020, with 4,754 responses found that salary increase budgets are still in play at most organizations.  However, most respondents anticipated that employee compensation would grow by an average of 2.9 percent in 2020, down from the projected average increase of 3.3 percent expected at the start of the year (https://worldatwork.org/workspan/articles/salary-increase-budgets-fall-for-first-time-in-12-years). 

Salary increase budgets, which consist of the pool of money available annually for base pay adjustments show that for nonexempt hourly (nonunion) employees that the actual 2019 mean (the mathematical average of all respondents) was 3.2 percent. To date for 2020, the mean is 2.8 percent, with a projected mean of 2.9 percent for 2021.  For exempt salaried employees the actual 2019 mean was 3.2 percent and to date for 2020, the mean is 2.9 percent, with a projected mean of 2.9 percent for 2021.  For officers and executives, the actual 2019 mean was 3.2 percent and to date for 2020, the mean is 2.9 percent, with a projected mean of 2.9 percent for 2021. (WorldatWork 2020-2021 Salary Budget Survey: Top-Level Results and 2019-2020 Salary Budget Survey: Top-Level Results)

Salary structure changes, which consists of the percentage that pay grades, or salary structures increase each year, are down from 2019.  In 2019, the average was 2.2 percent and to date the overall average is 1.9 percent. According to the WorldatWork 2020-2021 Salary Budget Survey: Top-Level Results, the projection for 2021 is holding steady at 1.9 percent.

WorldatWork also reported that base pay merit increase budgets for 2020 are at 2.6 percent of compensation, which is a .3 percent drop from 2019. This small percentage drop shows that employers continue to differentiate base pay-related rewards.  In 2019, WorldatWork reported that the merit differentiation (mean) between high performers, middle performers, and low performers was as follows: high performers = 4.0 percent, middle performers = 2.7 percent, and low performers .8 percent.  For 2020, the same merit differentiation (mean) was as follows: high performers = 3.6 percent, middle performers = 2.5 percent, and low performers = .6%.

A preview of results from the Willis Towers Watson’s 2020 General Industry Salary Budget Survey – U.S. found that companies are projecting average salary increases of 2.8 percent for nonexecutive management and non-management exempt employees in 2021, and that hourly employees as well as executives are in line to receive slightly smaller increases of 2.7 percent. The results further explained that companies granted employees increases between 2.5 percent and 2.7 percent this year, below the 3 percent that companies had projected before the pandemic hit. Willis Towers Watson also reports that while many companies managed to avoid cutting salaries during the pandemic, most have reduced the size of this year’s salary budgets and are holding the line for increases for next year. While holding the line for increases employers are also embracing variable pay and other initiatives to recognize and help retain high performers. According to the Willis Towers Watson 2020 General Industry Salary Budget Survey – U.S. bonuses generally tied to company and employee performance goals, are projected to average 11 percent of salary for exempt employees, while bonuses for hourly employees will average around 5.6 percent.

According to data provided by The Washington Post (https://washingtonpost.com/business/2020/07/01/pay-cut-economy-coronavirus) in July 2020, by economists who worked on a labor market analysis for the University of Chicago’s Becker Friedman Institute, at least 4 million private-sector workers have had their pay cut during the pandemic. And, according to Korn Ferry’s May survey (https://www.kornferry.com/insights/articles/the-bonus-question) of some 3,500 executives at global companies showed that 16 percent of organizations were not planning to offer bonuses this year, and another 40 percent were unsure of what the payout would be, if there is one. Also, that among organizations that plan to distribute bonuses, 33 percent expected payouts to be less than originally intended, 12 percent anticipated them to be at or above the target level.

Pay equity still seems to be an issue for most employers.  WorldatWork reports in their 2020-2021 Salary Budget Survey that 65 percent of the employers who responded state that they expect to make pay changes in 2020, to address pay equity issues, making pay more equivalent for women and minority employees based on factors such as position, tenure, education and experience. The projected 2021 percentage is about the same.

For additional information related to salary increase budgets, salary structure increases, merit increases, or pay equity issues, please contact us at www.newfocushr.com.

Written by: Kristen Deutsch, M.B.A., CCP






New Focus HR is a human resources consulting and training company that services all organizations. Our expert team collaborates with businesses to attract, motivate, retrain and retain their biggest assets, employees. While engaged with an organization, our focus is to find solutions that improve the company’s internal HR-related practices while increasing results at the same time! Our focus. Your results.