2018 Salary Increase Budgets Expected to Rise 3% in the U.S.

Despite economic recovery, salary budget growth remains modest

Stephen Miller, CEBS By Stephen Miller, CEBS July 20, 2017
2018 Salary Increase Budgets Expected to Rise 3% in the U.S.

A new forecast predicts that salary increase budgets for U.S. employers will grow 3 percent on average in 2018 across most employee categories, essentially unchanged from 2017.

In July, WorldatWork, an association of total rewards professionals, released Top-Level Results: WorldatWork Salary Budget Survey, with actual 2017 and projected 2018 salary budget increases that account for planned cost-of-living adjustments and merit increases.

While salary budget increases represent additional funds that employers plan to spend on employee compensation, they don't necessarily represent the average salary or wage increase that workers will receive.

In the table below, the "mean" is the mathematical average while the "median" is the middle value after listing reported budget increase expectations 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.

Total U.S. Salary Budget Increases by Employee Category

Employee Category
Actual 2017
Actual 2017 Median Projected 2018 Mean Projected 2018 Median
Nonexempt hourly nonunion
Nonexempt salaried3.0%
Exempt salaried3.0%3.0%3.2%3.0%
All 3.0% 3.0% 3.1% 3.0%

Source: WorldatWork 2017-2018 Salary Budget Survey, top-level results. Survey data collected through May 2017.

In Canada, the average 2017 salary budget increase (both mean and median) was 3.0 percent, WorldatWork reported. For 2018, Canadian employers project a salary budget increase of 3.1 percent (mean) and 3.0 percent (median).

WorldatWork this year received 4,942 survey responses from 11 countries in addition to the U.S. and Canada.

"Companies are budgeting conservatively," said Kerry Chou, CCP, senior practice leader, WorldatWork. Nevertheless, "I wouldn't expect to see widespread adjustments to the 2018 budget."

In the U.S., factors that might explain the plateau in growth include the increased use of variable pay, Chou said. "We are also looking closely at the impact several regulatory actions have had on salaries: the rising minimum wage in certain regions and the overtime rule. It's possible that these changes may not have been reported as a salary budget increase in some cases."

While the overtime rule issued by the Obama administration's Department of Labor was blocked before taking effect at the end of last year, "many organizations had already implemented the changes and chose not to undo them," Chou said. "So, with the continued 3 percent increase of salary budgets and these unreported salary changes, this picture could be brighter for the workforce than it initially appears."

[SHRM members-only HR Q&A: How can I locate resources for salary survey data for all industries and occupations?]

For Workers, More of the Same

WorldatWork's findings are in line with other 2018 salary projections. For example, 2018 pay projections were reported last May in Planning Global Compensation Budgets for 2018 by ERI Economic Research Institute, a compensation analytics firm in Irvine, Calif.

The firm's forecast, based on data from over 20,000 companies in its research database and analysis of government statistics, projected that U.S. salary increase budgets will grow by 3.2 percent in 2018, up from a 3.1 percent increase in 2017 and 3.0 percent in 2016.

The global economy seems to be gaining momentum, and the U.S. economy is expected to expand due to the current presidential administration's eased fiscal policy, among other factors, said Linda Cox, CCP, global total rewards expert at ERI Economic Research Institute.

However, wages haven't kept up with rising productivity in the U.S. and elsewhere, Cox pointed out. Technology, which continues to replace workers in many areas, and competition from lower-cost global labor markets, are among the reasons why.

For employers, the economic recovery provides "an opportunity to look at their total rewards strategies and practices" to ensure fair distribution of rewards based on performance for all employee groups, Cox said.

Employers should also ask whether they are preparing their workforce for technological advances, such as artificial intelligence, that will create new opportunities for skilled employees while continuing to displace other jobs.

"A breakthrough in technology fundamentally changing the way people work also requires an investment in human capital to prepare employees for the future," Cox noted.

Related SHRM Articles:

3% Salary Increases Put Greater Focus on Variable PaySHRM Online Compensation, August 2017

Employers Try Better Ways to Measure and Reward PerformanceSHRM Online Compensation, August 2017

More Competition for Talent Is Leading to Rise in Wages, SHRM Online Talent Acquisition, July 2017

Evolving Company Culture from Base Pay to Variable Rewards, SHRM Online Compensation, June 2017

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