Raises Aren’t Raising

In 2008, many employees either lost their jobs or their pay was frozen. And every year since then, employees have been crossing their fingers that this will finally be the year where they will see a significant increase in pay. But it’s not.

Aon Hewitt’s U.S. Salary Increase Survey of 1,074 companies shows base wages and bonuses won’t be increasing in 2017 any more than they did in 2016. This is the 5th year companies have predicted a 3% increase but actually only provided a 2.6 – 2.8% average increase. This is viewed as a sign of the pressure companies are feeling to keep fixed costs low.

The survey also showed:

• 12.8% of payroll is going toward variable pay (bonuses and pay-for-performance)
• 10% of companies have frozen salaries (up from 6% in 2015)
• Stopping annual raises and shifting to performance-based bonuses or perks is a strong consideration for many companies

On December 1st, we expect to see a huge increase in the number of non-exempt employees due to the increased minimum salary for exempt employees. This means the potential for considerably more overtime hitting your payroll and another reason it’s doubtful we’ll see companies offering higher pay increases. You’ll need to see what your new payroll costs are compared to prior years.

Another component is the increase to minimum wage. While you may only be providing tiny raises, the state is providing 10% increases. This, too, affects your bottom line and needs to be weighed in your overall payroll costs.

While bonuses are becoming more popular as a way to reward employees without increasing fixed costs, they also have a downside. Bonus pay may qualify for an overtime premium with non-exempt employees, is often taxed higher, and white-collar positions are often offered more bonus potential than blue-collar positions.

I like bonuses instead of higher pay but you need to think through a company-wide plan. Everyone should have an opportunity to profit based on company, team, and personal performances. You want a written bonus plan that is distributed and communicated in a way that every employee knows exactly what they must do to earn their piece of the bonus.