The Scoop on Salary Increases

A May 2017 forecast from WorldatWork predicts that salary increase budgets for U.S. employers will grow 3% on average in 2018 across most employee categories. This projection is essentially unchanged from the 3% that employers budgeted in 2017. These projected 2018 salary budget increases account for planned cost-of-living adjustments and merit increases.

In a second point of view, organizations are holding the line on pay raises for US employees. According to Mercer’s "2018/2019 US Compensation Planning Survey," salary increase budgets for 2018 are 2.8%–no change from 2017–and projected to be only 2.9% in 2019, despite noticeable factors like the tightening labor market and a high rate of workers voluntarily quitting their jobs.

These projections are the average increase that employees can expect in 2017, 2018, and 2019. They are not the percentage of increase that employees can expect across the board. Even when employees do similar work, employers are increasingly differentiating pay based on performance.

© The Balance, 2018 

Why do some employees receive salary increases?

Why do some employees make more than others for similar work? They regularly receive pay raises and salary increases. Four different employment issues primarily drive this fact about salary increases. Pay raises are dependent upon:

  • the industry you are employed in,
  • the job market and market-based pay for your job in your region of the country,
  • the pay practices and philosophy of your organization, and
  • your performance on your job.

Increasingly, differentiating salary increases by employee performance is the norm. High performing, superior employees can expect to receive as much as 4.5% to 5% and, in some cases, up to 10% based on their performance.

Companies are forecasting 3% increases, similar to years past. But how that budget is spent may vary by person. Employees with the highest possible rating could see increases in the range of 4.5% to 5%, while low performers get an increase between 0.7% and 1%. Bonuses for salaried employees are projected to be 11.6% of pay, on average, with rewards for special projects or one-time achievements set at 5.6%, on average.
A lot of companies are making the process more about feedback than about performance rankings. That means there's a real opportunity to sit down with a manager and make sure there's a mutual understanding: What’s really expected of me, how will I be measured, and how will that impact my pay?

With this in mind, if you are disappointed about the amount of your salary increase, the most important question, you need to ask your manager is the following. "What can I improve about my performance and contribution so that I am eligible for the highest pay raise in the future?"

Employee Performance Has an Impact on Pay Raises

Mercer's compensation data compare similarly. According to Mercer’s 2017/2018 US Compensation Planning Survey:

...the average merit increase budget is expected to be 2.8% in 2017, with projections rising slightly to 2.9% in 2018.

Salary increases for top-performing employees—7% of the workforce—will be almost twice that of average performers as companies continue to differentiate salary increases based on performance.

An increasing number of employers are budgeting promotional dollars separately from merit pay increases. Besides salary increases, promotional increases as a percent of base pay are rising, Mercer says that this is a "sign that organizations are looking internally at talent and career progression to retain key employees rather than risk losing them to competitors."

The promotional increases, according to Mercer's 2016 survey average about 8% of pay, vary by job but consistently rose for all groups of employees. "For executives, promotional increases rose to 9.1% of base salary (compared to 8.4% last year) and for professionals rose to 7.7% (compared to 6.9% last year)."

The Cost of Benefits Increases Employee Compensation

Employees also need to consider the cost of their benefits when they consider their total compensation package. Traditionally, the average employee is unaware of how much additional compensation is actually provided by the employer:

Employer costs for employee compensation averaged $35.28 per hour worked in March 2017, the U.S.Bureau of Labor Statistics reported today. Wages and salaries averaged $24.10 per hour worked and accounted for 68.3% of these costs, while benefits averaged $11.18 and accounted for the remaining 31.7%. Total employer compensation costs for private industry workers averaged $33.11 per hour worked. Total employer compensation costs for state and local government workers averaged $48.24 per hour worked.

Are you interested in seeing an average of the cost to your employer to provide your benefits? Take a look at Mercer's Quick Benefit Facts for 2017. The chart contains the annual limits through 2017 for various employee benefit purposes, the definition of highly compensated employees, and Social Security taxes and benefits.

Research Your Salary Before Jumping Ship

Do you believe your work is worth more money than you are making? If so, you are not alone. In a 2015 survey, Mercer found that salary is the reward most highly valued by workers but that only 55% of workers are satisfied with what they earn.

The interesting finding is that, when compared with the firm’s market data for similar positions, only 19% of the group is actually underpaid; 17% appear to be overpaid, and 34% are fairly compensated.

Are you still one of the employees who is job searching because you feel underpaid? You need to continue your market research and collect market-based data to determine if you really are underpaid. These sites will give you an idea of what a person in your region, with your job, and with your job title might make:

  • Recommended site on which to research salary information. Highly accurate for mid-west jobs.
  • Employees and former employees post salary information and rate companies.
  • Informative site: pay scales tend to be high and reflect large urban regions. Find a useful salary wizard.
  • Find a free salary wizard.

Human Resources professionals have salary websites and books that help them make decisions about salary ranges. Sometimes, employees are allowed access to these ranges. They will likely be closer to what employees in your region make.

The big national websites are often not as accurate as small regional employer surveys in which your employer may actually participate.

Perhaps your employer even publishes the pay ranges for company jobs which can be helpful in your quest to discover your pay potential. According to SHRM, more employers are sharing this information.

You Still Want to Make More Money

You’ve looked at the national average figures in the survey for your industry and region. You’ve researched your salary at the salary calculators provided above. You’ve talked to your HR professionals and you have discovered that you are appropriately paid. Your salary may fairly reflect the pay practices and salary ranges available within your organization.

You still want to make more money, though; what are your options and how might you go about making more money?

Not just in your current job, but throughout your career, you and the choices you make have a huge impact on how much money you make. You have options. Take a look at these options.