Low Inflation, Unemployment Lead to U.S. Salary Budget Increase Three-peat

Aug. 2, 2016 — While "three-peat" was a thrilling word coined by the L.A. Lakers in the late 1980s, it's less exciting today — especially when discussing U.S. salary budget increases. Yet, there's no arguing with the numbers: U.S. employers reported that the average 2016 total salary increase budget is 3% (mean and median) for the third year in a row.

These are the findings of the "WorldatWork 2016-2017 Salary Budget Survey," which surveyed 5,759 WorldatWork members from 19 countries and representing 15 million employees. The survey closed in May 2016, and all data include zero-percent responses.

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"Organizations are still planning and awarding salary increases, but the amount of the increases remains flat and is not changing year over year," said Kerry Chou, CCP, WorldatWork senior practice leader. "In the U.S. in particular, this may be related to inflation, which remains low. The demand for larger salary increases just isn't there and low unemployment has not been enough to motivate organizations to increase salary budgets."

The story gets worse for Canada where, when aggregated across all employee categories, regions and industries, the average total salary budget increase is 2.6% this year — a drop from the 2.8% budgeted in 2015 and short of the 2.9% projected for 2016.

"The economic contraction Canada experienced in 2015 continues to dampen salary budget increases," Chou said. "Economic uncertainty has employers cautious about increasing budgets and opting for conservative salary increases to attract and retain needed talent. Labor market pressures would likely need to come from multiple directions to accelerate wage growth."

Respondents seem mildly optimistic about 2017, with the average total salary increase budget in Canada projecting to return to 2.8% in 2017, and the median total salary budget increase expected to remain firm at 3%. In the United States, respondents reported plans for a slight increase in 2017, but only up to 3.1%. Among all countries, there was almost no change in growth reported from a year ago.

India maintains the largest salary increase budget of all countries surveyed, with an average budget increase of 10.1% (median: 10.6%), despite a four-tenths of a percentage point fall from 10.5% (median: 11%) in 2015. Brazil reported the only growth in average 2016 total salary budget increase at 7.9% (median: 8%), up from 7.5% (median: 7.8%) last year, and expects a slight rise to 8%, mean and median, in 2017. India and Brazil have retained the largest increases since WorldatWork expanded its data collection in 2012.

Other key findings:

  • Base salary increases (e.g., general increase/cost-of-living adjustment [COLA], merit increase) are being awarded to 89% of employees in 2016 on average. The median figures show that most organizations will award pay increases to nearly all employees.
  • Promotional increases were awarded to 8% (median: 7%) of employees in 2015, one-tenth of a percentage point greater than the 7.9% (median: 7%) average in 2014. Of the promotional increases received, the size of the average pay increase remained unchanged at 8.4% (median: 8%). The planned amount that organizations spend on promotional increases in 2016 also had no change, at 1.5% (median: 1%) of total base salaries.
  • The percentage of organizations using variable pay marginally rose to 84% in 2016. This number has hovered around 80% for many years. A combination of awards based on both organization/unit success and individual performance continues to be the most prevalent type of variable pay program.
  • Though overall salary budget increase data has plateaued in the past few years, industry-specific salary increase budgeting has continued to grow and contract, creating varying mean trend lines. Similar to national figures, though, most industries surveyed share a median of 3%. Of particular note: a large fall in average salary increase budgets in Mining, Quarrying and Oil and Gas Extraction to 1.3% (median: 0%) from 2.5% last year and after leading all industries around the 4% mark just a few years ago. This drop is heavily influenced by a high number of zero-percent budgets reported from the Oil and Gas Extraction subindustry, likely connected to low oil prices. Mining, Quarrying and Oil and Gas Extraction is projected to return to near the 2015 mark with 2017 salary budget increases reported at 2.4% (median: 3%).

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