As organizations continue to contend with the changing jobs landscape, lower unemployment, and the emergence of new roles, flat merit increase budgets may not mean smaller pay raises for all. Despite budgets remaining relatively unchanged at 2.8% in 2017, according to Mercer’s 2017/2018 US Compensation Planning Survey, the largest survey of its kind, base pay for certain jobs – those with in-demand skillsets – is advancing at a far greater pace. The firm’s 2017 US Mercer Benchmark Database reveals jobs like Social Media Communications Professional and Senior Engineering Technologist are experiencing base salary pay movement of 5.8% and 5.4%, respectively (see Figure 1).
“While companies are holding the line on increases to fixed compensation, they are getting much smarter about how they distribute those budgets, focusing on in-demand skills and jobs emerging from new ways of doing business,” said Mary Ann Sardone, Partner and Mercer’s North America Workforce Rewards Practice Leader. “Clearly, jobs that represent critical skills aligned with company growth are being prioritized when it comes to pay.”
In addition, as a result of balancing reward programs with flat budgets and the need to attract and retain critical talent, organizations often look to promotions as a tool to advance employee pay. In fact, the typical promotional increase for professionals ranges from 7%-12%. New to this year’s survey, Mercer incorporated promotion budgets through a new category, “total increase budgets,” which takes into consideration not only merit increases, cost of living adjustments, and across the board increases, but promotions, as well.
“Total increase budgets were 3.4% in 2017, which reflects a more realistic picture of pay movement in organizations,” said Ms. Sardone. “While it may not be the best approach to advancing pay, we know promotion is often used as the answer to common challenges of rewarding critical-skills workers, retaining top performers, and motivating high-potential employees when the annual merit increase falls short.”
Delivering with limited budgets
Differentiation of salary increases by employee performance continues to be an approach that organizations use to deliver on a limited budget. According to Mercer’s survey, highest-performing employees are receiving base pay increases that are nearly twice that of average performers and four times that of the second lowest performers. Typically, more than half of an organization’s employees fall in the middle performance category, so organizations must work out how to deal with the bulk of their workforce while focusing dollars on performers who are driving their business strategy and limiting dollars on those who are not (see Figure 2).
“Bottom line, employees who perform below expectations can expect little increase in pay – it’s the reality of pay for performance adopted by most companies today,” said Ms. Sardone.
With regards to planning for 2018, Mercer’s survey revealed that organizations continue to put retention and attraction concerns at the top of their list and these concerns have grown significantly since last year (75% and 71%, respectively). With limited budgets for pay adjustments, organizations are investing in a variety of practices to strengthen the value proposition beyond the contractual compensation and benefits programs. “Programs that support career development and overall wellbeing are becoming popular ways to differentiate as the labor market tightens,” said Ms. Sardone. “Companies realize that competing on pay alone is an expensive proposition, so standing out in other areas is a cost-effective way to create an attractive employee value proposition.”
Mercer’s 2017/2018 US Compensation Planning Survey, which is the largest survey of its kind and has been conducted annually for more than 25 years, includes responses from more than 1,500 mid-size and large employers across the US and reflects pay practices for more than 16 million employees. The survey results capture seven employee segments: executive, management, professional (sales), professional (non-sales), office/clerical/technical, trades/production/service, and unionized employees across multiple industries.
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Figure 1: Jobs with above average base pay increases*
*Data is representative of same organization, same jobs, with the highest change in median base salary. Only jobs with 10 or more organizations reporting were included.
Source: Mercer’s 2017/2018 US Mercer Benchmark Database
Figure 2: Average base pay increases as a function of performance*
*Based on companies with a five-point rating scale. All averages include 0s.
Source: Mercer’s 2017/2018 US Compensation Planning Survey