While there are conflicting reports about what workers want from their employers—whether it’s more flexibility, better workplace perks, access to better health benefits—one thing remains clear: employee compensation is the key to attracting and retaining talent.
According to Mercer’s 2018/2019 US Compensation Planning Survey Update, employers are projecting their average total increase budgets (which includes merit and promotional budgets) to be 3.4%, up slightly from 3.2% anticipated 6 months ago. Notably, of the approximately 30% of employers projecting higher total increase budgets, changes were primarily reflected in promotional increases whereas merit increases remained the same at 2.9%.
These findings were similar to BLR’s most recent pay budget survey results, which found that 16% (up from 10% last year) of employers expect to offer 2019 merit increases of up to 2.5%, and 41.7% plan to offer merit increases of 2.5% to 5%. An average of 3.5% plan merit increases from 5% to 10%, and a scant 0.2% plan to go over 10%. An average of 37.8% (down from 50% last year) plan no increase (7.8% to award 0%, and 30.8% selected N/A).
The top reasons cited for higher projected budgets are:
- Greater competition for workforce or anticipated labor shortages (31%),
- Change in base salary structure or competitive positioning to market (26%), and
- Business performance stronger than expected (14%).
BLR’s recent survey also found that the factors used to establish a salary increase budget/pool include company history (10.6%), company profit (48.8%), salary increase surveys (23.9%), the consumer price index (2.6%), and inflation rate (3.5%). Employee-related factors that affect salary include merit for 53.1%, job classification for 3.4%, and department or division for 0.9%.
“As employers evaluate their future workforce needs, they are starting to think and act differently than they have in the past,” said Mary Ann Sardone, Partner and Mercer’s North America Rewards Practice Leader. “Concerned about retaining employees in an environment with high competition and low unemployment, higher promotional budgets signal more investment in career growth and promotion from within.”
High rates of employees voluntarily leaving their jobs may be a factor, as well. According to Mercer’s 2018 US Turnover Study, the top reasons that employees voluntarily leave organizations are base pay, promotion opportunity, and career change.
“With a tight job market and confidence in the economy, voluntary turnover is at an all-time high,” said Ms. Sardone. “It is important that employers recognize the critical talent they have by getting pay and promotions right – or they risk losing employees to competitors that may offer better salaries and the opportunity for more career growth.”