Employees anticipating major salary increases next year may be out of luck.
According to Aon Hewitts 2015 U.S. Salary Increase Survey, salaried exempt workers will see base pay rise by 2.9% in 2015. By comparison, total compensation and spending budgets for salaried exempt employees was 11.4% in 1996, with 3.9% accounting for salary and 7.5% accounting for bonuses.
The data dovetails with recent data from Towers Watson pointing to similar 3% projected salary hikes.
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Organizations are under immense pressure to keep costs in line to remain competitive, and as a result, we are seeing more than 90% of companies shifting more of their spending to variable pay because this type of strategy enables them to recognize and reward performance without growing their fixed cost, says Ken Abosch, broad-based compensation practice leader at Aon Hewitt. Pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent.
Between 1996 and 2000, salaries increased about 4.1% a year, according to Aon Hewitts data. From 2011 through 2015, annual raises have averaged about 2.8%. And according to the data, even as the economy emerges from the recession, employers have no plans to return to higher salary increases.
The modest increases weve seen over the past 20 years are an indication that employers have changed their compensation strategies for good, and we shouldnt expect to see salary increases revert back to 4% or higher levels that were commonplace in the past, Abosch adds.
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Although the idea of historical merit raises may be fading from view, data suggest employers are still expected to dole out other forms of compensation by way of bonuses, cash rewards and other forms of variable pay.
Aon Hewitts survey found that workers could see their variable pay rise by 12.9% this year.
The level of rewards that industries are able to offer employees vary widely and are typically based on competitive pressures and company performance, Abosch notes. For example, companies in the automotive industry are better positioned to offer above-average salary increases because of growing consumer demand and recent manufacturing efficiencies and productivity improvements. On the other hand, organizations in the energy sector have been seriously impacted by the falling cost of oil and are therefore forced to keep fixed costs at a minimum.
According to the study, workers in some U.S. cities can expect to see salary increases higher than the national average in 2016. These cities include:
- Washington, D.C. (3.8%)
- Dallas (3.5%)
- Minneapolis (3.3%), and
- Columbus, Houston and Seattle (3.2%).
Salary increases in 2016 are expected to be lower than national average in:
- Kansas City (2.7%)
- Rochester (2.9%), and
- Philadelphia and Charlotte (2.8%).
Similar to the national average, Aon notes, projected spending on variable pay for 2016 shows record highs, particularly in Houston (16.5%), Boston (16.1%) and Minneapolis (13.0%).
