U.S. employees are in line for pay raises in 2019

United States employers are projecting slightly larger pay raises for employees in 2019 as the unemployment rate has fallen sharply and the job market has tightened, according to a new survey by Willis Towers Watson.

The survey included responses from 814 companies representing a cross section of industries. The report provides data on actual salary budget increase percentages for the past and current years, along with projected increases for 2019.

Employers rewarded their top performers with the largest raises in 2018 and are projecting modestly larger discretionary bonuses next year in their ongoing effort to reward and retain the best performing employees.

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The 2018 General Industry Salary Budget Survey found U.S. employers project to give exempt, non-management employees average pay increases of 3.1% in 2019, compared to 3% in 2018. Nonexempt hourly employees can also expect larger increases next year — 3% in 2019 versus 2.9% this year.

Employers are planning smaller increases for executives, while steady increases are planned for management employees and nonexempt, salaried employees. Only 3% of companies plan to freeze salaries next year. Pay raises have hovered around 3% for the past decade, with 2008 showing the last significant increase in pay at 3.8%.

Also see: Sharing salary data: Empowering HR with compensation insight

The survey also found companies continue to reward their star performers with significantly larger pay raises than average performing employees. These employees receive the highest possible ratings and were granted an average increase of 4.6% in 2018, 70% higher than the 2.7% increase granted to those receiving an average rating.

Sandra McLellan, North America rewards business leader at Willis Towers Watson, says after a decade of consistently flat pay raises, she is witnessing a slight uptick as companies are feeling pressure to boost salaries, given the low unemployment rate and the best job market in many years.

“While companies have been able to hold the line on raises, the tides are changing,” McLellan says. “Many companies are establishing slightly larger salary budgets while at the same time focusing on variable pay such as annual incentives and discretionary bonuses to recognize and reward their best performers.”

The survey found companies are projecting discretionary bonuses — generally paid for special projects or one-time achievements — will average 5.9% of salary for exempt employees, slightly larger than companies budgeted for 2018.

Slightly larger discretionary bonuses are planned for managers and salaried, nonexempt employees. Annual performance bonuses, which are generally tied to company and employee performance goals, are projected to hold steady or decline slightly in 2019 for most employee groups.

“A growing number of companies are coming to grips with the fact that employees are more willing to change companies to advance their careers and to talk openly about their pay,” McLellan says. “As a result, organizations are facing increased pressure entering next year to devise a focused strategy and plan on how to allocate their precious compensation dollars or risk losing some of their best talent.”

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