Bigger raises, bonuses are unlikely next year
Survey results reflect the pressure firms face to contain fixed costs.
Anyone hoping his employer is planning to put more into raises and bonuses next year is likely to be disappointed.
Human resources consulting firm Aon Hewitt’s annual U.S. salary increase survey predicts that base salaries and bonuses for U.S. workers won’t budge in 2017, despite a better job market this year that would seem to prompt employers to shell out more to compete for talent.
The firm’s forecast, based on a survey of 1,074 U.S. companies and released last week, shows that the percentage of payroll budgets that companies plan to spend on bonuses will be flat from the year prior, with 12.8% of corporate payroll budgets going to “variable pay.” Raises will be similarly level, with increases forecasted at just 3%.
“It’s a little counterintuitive, given the strengthening economy and job creation numbers,” says Ken Abosch, who leads the firm’s broadbased compensation practice for North America. “It’s indicative of the pressure organizations are under to keep the lid on fixed costs.”
Although that 3% is slightly higher than the actual 2.8% increases companies doled out in 2016, according to Aon Hewitt’s survey, it won’t be surprising if the actual 2017 numbers don’t reach the prediction. Companies “haven’t hit that number in five tries,” Abosch said, referring to the last few years. “I thought we had a decent shot this year, but the oil industry got hit very hard.”
Aon Hewitt’s research also found that 10% of companies had frozen salaries, up from 6% in 2015. Struggles in the energy sector explain the jump, however, and Abosch expects those numbers to fall back down next year.
The numbers come as some corporations say they are thinking about doing away with annual raises. For decades, companies have shifted more and more dollars into performance-based bonuses or other perks, spending less on yearly increases. Now some consultants are urging companies to do away with annual raises altogether, arguing that the small 2% to 3% increases don’t really motivate people or differentiate employees.
Some companies are considering the idea: bellwether General Electric, for instance. The move comes as it has revamped how it reviews employee performance, something many companies have reconsidered in recent years.
Yet while companies are rethinking the annual raise, not all employees are likely to benefit from the changes. When it comes to workers and their pay, Abosch says, “if there’s anything to be excited about, it’s that there is that upside potential through bonuses. But the unfortunate reality is that’s still a limited segment of the workforce.”
His data show that while “virtually all” white-collar professionals are eligible for corporate incentive programs, the percentage of non-union hourly workers who are eligible is more like 14%.
“It’s been pretty consistently down at that level,” he said in an interview Monday. “It creates haves and havenots.”
Asked about the likelihood of his 2017 predictions holding into next year, Abosch said a particularly high number of factors could sway next year’s numbers. In setting compensation, companies are weighing not only the outcome of the presidential election but the impact from Britain’s vote to leave the European Union, increasing global trade issues and OPEC’s positioning on crude oil pricing, he said.
Moreover, new rules that will make millions more workers eligible for overtime pay kick in Dec. 1.
“A lot of organizations are going to incur some significant cost increases,” Abosch said, noting that he may revisit the numbers as a result. The new rules, he said, “will have some net benefit for some employees ... but it’s going to probably come at the expense of some of the employees it was designed to help.”