Pay for salaried workers could drop next year

The economy is humming, the unemployment rate is at one of the lowest points in half a century and job growth is on the rise, as employers complain about being unable to fill open jobs.

But despite all that, pay for salaried employees could go down in 2019.

A survey released by the human resources consultancy Aon projects that the increase in the amount companies spend on cash compensation for salaried workers in 2019 (a combination of base salary and “variable pay,” or incentives, signing bonuses or recognition awards) actually will drop slightly, falling from 15.5 percent of companies’ total payroll to 15.2 percent in 2019. That 15.5 percent also represents a decrease for 2018, the survey found: Companies set aside 15.6 percent of their payroll in 2017.

Aon’s survey, which collects data from 1,026 U.S. companies, found that companies expect to boost raises in 2019, budgeting 3.1 percent, the highest figure since the recession. But the part set aside for bonuses is expected to fall in 2019, from 12.5 percent to 12.1 percent.

That drop, Aon’s report said, is counterintuitive. It’s surprising, said Ken Abosch, who is Aon’s broad-based compensation leader, that “the outlook for 2019 is so conservative from a bonus perspective given the strength of the economy and corporate performance.”

Of course, data showing slow wage growth are nothing new. Although worker pay grew at the fastest rate in nine years in August, according to the U.S. Labor Department, it comes after years of sluggish growth, and raises employees do see are often being wiped out by inflation.

But the Aon survey suggests another interesting dynamic. For years, companies have shifted their compensation dollars into more variable pay for two reasons. One is a bid to boost performance: Employees have come to expect that pay is increasingly tied to higher performance. The other is a concern that doling out higher base pay locks employers in to paying higher salaries that can’t be taken away, whereas bonuses are easy to pull back when lean times strike again.

Now, the report says, they appear to be shifting money out of variable pay and into base salary as a way of attracting candidates with initially higher pay — even if that means cutting into bonuses in the future.