Job demand is up and the economy is stronger. That’s the good news for this year. Unfortunately, workers are not likely to see a bigger bump in their pay checks and bonuses than last year.
Base pay is expected to grow 3% this year, barely higher than the 2.9% increase seen last year, a new report from Aon Hewitt’s 2017 U.S. Salary Increase Survey finds. The survey, which polled 1,062 U.S. companies, also finds that lower performers may have a tough time. Of the more 66% of employers polled who plan to address merit pay, 40% are dropping or ending increases for low performing workers this year.
“The economic outlook for most industries continues to improve with increased demand for goods and services and stronger job creation, but companies remain under pressure to increase productivity and minimize costs,” says Ken Abosch, broad-based compensation head at Aon. “As a result, we continue to see relatively flat salary increase budgets across employee groups, with most organizations continuing to tie the majority of their compensation budgets to pay incentives that reward for performance and business results.”
Of the more than 66% who say they will take action on merit pay, 18% are going with a more aggressive, highly leveraged merit increase system and 15% are establishing more stringent performance targets. While most cities will fall in line with the national average for salary increases, others may see a higher percentage. These include Houston (14.7%), New York City (14%), and Philadelphia (13%).
Workers in the automotive, computer, accounting/consulting/legal and telecommunications industries are likely to see salary increases slightly above 3%. But those working in education, construction/engineering and the medical devices industry are likely to see their salaries grow by less than 3%. So-called variable pay, or merit and annual bonuses, as a percentage of payroll budgets, is expected to be 12.5% this year, TheWashingtonPostreports, citing the Aon Hewitt survey. That would make it the lowest level since 2013.
The 12.5% represents a drop from 12.7% in 2016 and 12.8% in 2015, Abosch tells TheWashingtonPost. That downward trend points to concerns among CEOs about political uncertainty, global competition and rising inflation, he says.
The Aon Hewitt survey results also runs contrary to proclamations from the Trump White House that higher wages will come with the low unemployment. “The rhetoric from the administration suggests that there’s going to be more aggressive wage growth, and this report is not supporting that,” Abosch says.
Human resource managers will be tested, says Chris Kelley, director of survey product management for Aon Hewitt, in a blog post. “We don’t have a crystal ball, but in all likelihood, this is the new normal,” Kelley says. Chief human resource officers and compensation leaders “will continue to face the challenge for finding creative ways to operate in this era of tight salary budgets.”
Workers also need to be smart to increase their chances of landing better pay and bonuses, Laddersreports. Practicing with a friend before meeting a supervisor to hash out a strong case for more pay is recommended. Disenchanted workers also should not threaten to quit as this may create a negative relationship with their bosses going forward or lead to their firing, Amy Cooper, of The Cooper Strategic Group, says.