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Restrained wage increases in the U.S. are based on modest economic growth
U.S. employees can expect an average base salary increase of 3.1 percent in 2016, up only slightly, if at all, from the raises they received this year, according to a WorldatWork survey of its members. WorldatWork is an association of total rewards professionals, mostly at large North American companies.
Preliminary results from the 2015-2016 Salary Budget Survey were released on July 14, 2015, with salary budget projections for the U.S. and 18 other nations. The data shows projected 2016 salary budgets in the U.S. holding steady with mean (average) increases of 3.1 percent for most major employee categories.
Total U.S. Salary Budget Increases
Nonexempt hourly nonunion
Source: WorldatWork 2015-2016 Salary Budget Survey, preliminary findings. Survey data collected through May 2015.
The “mean” is the mathematical average while the “median” is the middle value after listing reported budget increases in successive order. Outliers, or extreme values on either the high or low end, have the biggest effect on the mean and less effect on the median.
“Survey respondents indicated they are projecting only a slight increase in 2016 budgets to 3.1 percent,” Kerry Chou, WorldatWork senior practice leader, told SHRM Online.
The limited growth in salary budgets suggests that there has been little change in the degree of upward pressure on wages, given the tepid post-recession economic recovery. Should economic growth speed up, expectations for higher wage increases would rise as well.
Compensation experts are predicting that, at some point, true unemployment (including individuals who have stopped looking for full-time work) will fall to a level low enough to begin putting upward pressure on wages. However, given the economic data, “I wouldn’t count on accelerating wage growth just yet,” said Chou.
WorldatWork’s U.S. salary budget estimations for 2016 are slightly higher than a recent forecast by ERI Economic Research Institute, which projected that U.S. companies’ salary increase budgets for 2016 will grow by 2.7 percent, down from the 2.9 percent increase ERI reported for 2015.
Top performers can expect higher-than-average merit-based salary increases, while low-rated performers are more likely to see no or negligible increases in their base pay, as are those at or near the top of their position's salary range. Incentive-based variable pay programs, including annual bonuses, typically are budgeted separately from base salary increases.
For more regarding WorldatWork's variable pay budget forecast and pay-for-performance differentiation, see the SHRM Online article Modest Gains Seen for 2016 Variable Pay Budgets, Salary Ranges.
Hay Group Forecasts a Base Pay Increase of 3%
Separately, for the fifth year in a row, U.S. employees can expect to see a moderate 3.0 percent median base salary increase in 2016, according to new research released in August 2015 by Hay Group, a global pay consultancy.
This figure is in line with actual pay increases of 3.0 percent reported by the companies Hay Group surveyed in 2015. These projected and actual increases have remained nearly constant since the end of the recession and reflect employers’ conservative attitude toward base salary increases.
“Employees and employers alike will need to adjust to the fact that conservative base salary increases are the new normal in the post-recession era,” said Tom McMullen, a vice president in Hay Group’s Reward Solutions Consulting practice. “Organizations are closely focused on containing fixed costs and, as our data indicates, keeping base salary increases at a lower level is a key tool many companies are employing.”
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.
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