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Some Organizations Lowering Previously-Set Salary Increase Budgets

About a third of organizations in the United States are lowering their projected salary increases for 2021 amid concerns over weaker financial results and budgetary restraints brought on by the COVID-19 pandemic.

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This is according to a survey of 705 U.S. employers by Willis Towers Watson, which found that 35% have reduced their projected 2021 salary increase budgets from earlier projections, while 50% kept them intact.

According to the survey, all employee groups other than executives are projected to receive salary increases of 2.6% in 2021. Those include management, exempt non-management, and non-exempt salaried and hourly employees. Executives are projected to receive slightly smaller increases (2.5%) next year.

For context, WorldatWork’s “2020-21 Salary Budget Survey” found that the average salary budget hike for 2021 would be 2.9%. Given financial complications from the pandemic, WorldatWork will be providing an updated version of this survey in December.

Willis Towers Watson’s previous survey, which was conducted May to July, showed that companies projected salary increases of 2.8% for all employees next year. While most employers (84%) will deliver pay raises on schedule, about one in six employees will not receive a pay raise in 2021.

“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, 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.”

The survey also found two in three employers (66%) are planning to award annual performance bonuses next year while 8% don’t expect to do so. The remaining 26% are undecided. Among respondents that plan to pay bonuses, 58% expect the bonus pool funding level to be at or above target level. Executives (91%) and management (87%) employees are the most likely to receive bonus awards; non-exempt hourly employees (63%) are the least likely to receive bonuses.

“Employers remain laser-focused on their ability to attract and retain talent during these challenging times. 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,” Hartmann said. “As companies navigate through these challenging times and settle into a new normal, 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.”


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