Employers don’t plan to boost pay raises despite the tight labor market

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Employees shouldn’t get their hopes up for a big salary boost in 2020. Despite low unemployment and a tight labor market, U.S. employers plan to hold the line on budgeted pay raises next year.

Most companies will offer a 3% increase, which is where raises have hovered for the past decade, a new report by global advisory, broking and solutions company Willis Towers Watson finds. Instead of pay raises, companies are relying on discretionary bonuses, performance and other incentives to recognize and reward top performers.

In areas where it is still very difficult to find labor or talent — such as cyber security, user experience, e-commerce and marketing — employers are getting creative beyond traditional annual salary increases.

“Employers are carving out increase pools for their high-potential and top performing employees, setting aside premium pay for highly valued skills, considering market adjustments for critical segments and providing more frequent increases outside of the annual cycle for in-demand jobs,” says Catherine Hartmann, North America rewards leader at Willis Towers Watson.

See also: Employees prefer promotions to raises

Even with low unemployment rates, some employers are feeling uncertain about what the market will bear in 2020 and, therefore, continue to be selective on where they spend their compensation dollars, Hartmann says.

Companies continue to reward their top performers with significantly larger pay raises than average performing employees. Employees receiving the highest possible rating were granted an average increase of 4.6% this year, which is 70% higher than the 2.7% increase granted to those receiving an average rating, according to the report.

Employers are projecting discretionary bonuses — generally paid for special projects or one-time achievements — will average 5.9% of salary for exempt employees, compared with 5.3% of salary granted for discretionary bonuses last year.

Companies should take a step back and look at their programs holistically, Hartmann suggests.
“Pay is a very important component and you need to be more competitive to be able to attract people to your organization. However, there are other reasons why people join your company, and it's important to look at those as well,” she says.

See also: Employers boost benefits at faster pace than salaries

In many cases, employers turn to competitive wellness benefits packages — including parental leave, elder care and sabbatical programs — to attract and retain employees, Hartmann adds.

“It's about making people feel whole in other ways besides pay,” she says. “It could be about work environment, free food for employees, flexibility to work at home or giving employees access to great technology. For the average employee, there are many things beyond pay that employers are looking at to keep people on board and engage them.”

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