One-Third of U.S. Employers Trim Projected Pay Raises for 2021

Two-thirds are still planning annual bonuses despite the pandemic

Stephen Miller, CEBS By Stephen Miller, CEBS October 13, 2020

One in 3 U.S. companies responding to a recent survey are lowering their projected salary increases for 2021 amid concerns over weaker financial results and budgetary restraints in the wake of the COVID-19 pandemic. Despite these concerns, two-thirds of employers say they expect to fund their annual short-term bonuses.

The survey of 705 U.S. companies, which together employ 14.3 million people, was conducted in late September.

Consultancy Willis Towers Watson's 2020 North American Compensation Planning Pulse Survey found that:

  • 35 percent of U.S. companies plan to lower salary increases next year.
  • 50 percent anticipate no change.
  • 2 percent project higher increases.
  • 13 percent hadn't decided yet.

When asked what factors led them to change their projections, surveyed employees (allowed to select multiple reasons) said:

  • They anticipated weaker financial results than previously expected (68 percent).
  • They were responding to cost management actions, such as budget cuts (66 percent).

All employee groups other than executives are projected to receive salary increases of 2.6 percent on average in 2021, the survey showed. Those include managers, nonexempt salaried employees and hourly employees. Executives are projected to receive slightly smaller increases, averaging 2.5 percent.

While most employers (84 percent) will deliver pay raises on schedule, about 1 in 6 employees will not receive a pay raise in 2021.

An earlier survey conducted by Willis Towers Watson Data Services from May to July showed that companies projected salary increases of 2.8 percent for all employees next year, in line with other surveys conducted during the summer. Before the pandemic, many employers expected average pay increases for 2021 to exceed 3 percent across all employee groups.

"The pandemic's economic implications have led employers in virtually every industry to rethink their compensation plans and budgets for the coming year," said Catherine Hartmann, North America rewards practice leader at Willis Towers Watson. "For many companies, reducing salary budgets—and, in some cases, suspending pay raises—was the most viable option, as they balance remaining competitive with maintaining financial stability."

Conference Board: Salary Increase Budgets Shrank in 2020

The Conference Board's Salary Increase Budgets for 2021 survey report showed that:

  • The 2020 average for actual total salary increase budgets—including exempt, executive, and nonexempt salaried employees—fell from 3.19 percent in 2019 to 2.60 percent in 2020.
  • For nonexempt workers specifically, salary increase budgets fell from 3.05 in 2019 to 2.58 in 2020.

The Conference Board, a large-business membership and research association, included 183 organizations in its annual survey, fielded between April 16 and June 21 of 2020.

Many respondents indicated their budgets were not yet finalized due to uncertainty created by the COVID-19 crisis. The report stated that "even lower salary increase budgets in 2021 are likely, barring surprisingly good vaccine new," which the end of 2020 apparently brought, making 2021 salary growth difficult to predict.

Bonuses on Track

Willis Towers Watson also asked U.S. companies about their bonus expectations for 2021, and found that:

  • 66 percent plan to award annual bonuses next year.
  • 8 percent don't expect to do so.
  • 26 percent are undecided.

Among employers that plan to pay bonuses, nearly 58 percent expect the bonus pool funding level to be at or above target level.

Executives and management employees are the most likely to receive bonus awards, at 91 percent and 87 percent of surveyed companies, respectively, while 63 percent of respondents expect to award bonuses to nonexempt hourly workers.

"Employers remain laser-focused on their ability to attract and retain talent during these challenging times," Hartmann said. "Annual performance bonuses, which are typically tied to individual and company performance, can play a significant role in helping employers achieve those goals, when faced with less-than-robust salary increases."

A stronger-than-expected economic recovery could yet boost next year's pay gains, while a prolonged recession could do the opposite. As companies navigate through challenging times, "we expect they will test and monitor the external market and their own internal workforce data more frequently, to better adapt their compensation programs and strategies," Hartmann said.

Employees Working Longer Hours Without Extra Pay

Unpaid hours worked by salaried employees have increased since the COVID-19 pandemic, according to a new report from the ADP Research Institute (ADP RI), an affiliate of payroll services firm ADP.

For its Workforce View 2020: Post-COVID-19 report, ADP RI surveyed employees worldwide, including 1,909 workers in the U.S., between April 28 and May 14, 2020. The researchers compared the results to similar research conducted between Oct. 29, 2019, and Jan. 6, 2020, before the COVID-19 epidemic.

When U.S. workers were asked, on average, how many hours per week they believed they worked without being paid—such as hours worked over lunch breaks or by staying up late—they responded:

  • In January: ADP hours worked -crop1bar.jpg hours
  • In May:       ADP hours worked -crop2bar.jpg hours

Employees "have seen a marked uptick in 'free' work, with the proportion doing 11-plus hours almost doubling in a matter of months," according to the report.

"There could be several reasons for this rise, from job security concerns spurring people to work even harder to demonstrate their worth, to staff failing to 'switch off' when working from home," according to ADP RI. "Whatever the cause, employers will want to weigh up whether this is resulting in improved productivity and keep a close eye on the impact on stress levels and job satisfaction."

Related SHRM Articles:

Executive Pay Measures Shift Toward Fairness, Social Responsibility, SHRM Online, September 2020

Salary Increase Budgets Decline for First Time in 12 Years, SHRM Online, August 2020

Developing a Post-Pandemic Pay Strategy, SHRM Online, June 2020

Related SHRM Resource:

Salary Increase Projections 2021, SHRM Express Request



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