ARLINGTON, VA, August 24, 2016 — Pay raises for U.S. employees are expected to hold steady at 3% in 2017, according to a survey by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company. The survey of 967 U.S. companies also found that employers continue to reward their best performers with significantly larger pay raises as they look for ways to keep their top talent and strengthen their pay-for-performance cultures.
The survey, conducted by Willis Towers Watson Data Services, found that virtually all respondents (98%) are planning to give employees raises next year, with salaries for exempt (i.e., professional) nonmanagement employees to increase 3.0%. That’s the same increase they received in each of the past three years. Employers are also planning 3.0% average salary increases for management and nonexempt employees. Executives can expect slightly larger raises — 3.1% in 2017, although those are smaller than the average increase executives received this year and in 2015.
“Given the continued low rates of inflation and the ongoing pressure on profit margins, employers remain cautious when it comes to budgeting salary increases,” said Laura Sejen, managing director, Rewards, at Willis Towers Watson. “While most companies are feeling little pressure to increase budgets relative to what we’ve seen in recent years, many are starting to question how those budgets are spent and whether their conventional approaches to salary planning are delivering a good return on that 3% investment. In fact, some employers are challenging the use of the annual cycle, while others are changing the criteria for determining the amount of individual increases.”
According to the survey, exempt employees who received the highest performance ratings were granted an average salary increase of 4.6% this year, about 77% larger than the 2.6% increase given to employees receiving an average rating. Companies gave salary increases of less than 1.0% to workers with below-average performance ratings.
The survey also found that annual performance bonuses, which are generally tied to company and employee performance goals, are projected to hold steady or decline slightly in 2017 for most employee groups. Exempt employees are projected to receive bonuses that average 11.6% of salary, roughly the same amount companies budgeted for this year. Conversely, discretionary bonuses, generally paid for special projects or one-time achievements, are projected to increase slightly compared to bonuses awarded last year. Discretionary bonuses for exempt employees are projected to average 5.6% of salary, slightly more than the 5.3% average bonus awarded in 2015.
“Incentives tied to individual and company performance continue to play a greater role in an employee’s total rewards package. Unlike salaries, incentives are variable and give employers much greater discretion in rewarding employees for performing at superior levels. During times when employees have greater opportunities to seek employment elsewhere, employers need to evaluate their total rewards strategies and programs to ensure their top employees don’t take their skills elsewhere,” said Sandra McLellan, North America practice leader, Rewards, at Willis Towers Watson.
About the survey
The Willis Towers Watson Data Services Salary Budget Survey was conducted between April and July 2016, and includes responses from 967 companies representing a cross section of industries. The survey report provides data on actual salary budget increase percentages for the past and current year, along with projected increases for the next year.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.