The Scoop on Salary Increases

What Pay Raise Can You Expect From Your Employer This Year?

Want to know what salary increase you can expect from your employer in 2020? Various organizations have published their predictions.

Compensation costs for employees increased 2.5% for the 12-month period that ended in December 2020. They increased 2.7% in December 2019. Wages and salaries increased 2.6% over the year. Benefit costs increased 2.3% during 2020 and increased 2.2% in 2019.

Benefits advisory and brokerage firm Gallagher's "2020/2021 Salary Planning Survey" report as presented by the Society for Human Resource Management (SHRM), predicts that, in 2020, salary increase budgets will rise 2.5% down from earlier projections of an increase of 2.8% on average. For 2021, the projection is for average salary budget increases of 2.1%, with some variations by both employee group and by location and industry.

Additionally, SHRM, based on Consultancy Willis Towers Watson's "2020 North American Compensation Planning Pulse Survey," predicts that all employee groups outside of executives are projected to receive salary increases of 2.6% on average in 2021. "Those include managers, nonexempt salaried employees, and hourly employees. Executives are projected to receive slightly smaller increases averaging 2.5%."

Mercer's Outlook Offers Average Raise for a Promotion

In the third point of view, according to Mercer in their November 2020 employer pulse check-in, "Moving forward with optimism," it is noted that, "When looking at the reported budget numbers, the organizations that are planning to give merit increases are averaging slightly below last year’s budgets at 2.8%, compared to 2.9% in 2020. However, if you pull in the 9% who have indicated they either will not have a merit increase cycle or will freeze salaries, the average increase budget drops to 2.4% for merit and 2.8% for total increases."

These projections are the average increase that employees can expect in 2020 and 2021 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.

According to Kiplinger:

"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

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.

According to Mercer’s 2019/2020 "US Compensation Planning Survey, "all employee groups saw a year-over-year promotional increase in pay, with the average promotion salary increases (as a percent of base) at 9.3%, ranging from 8.3% for support staff to 11.1% for executive staff. "However, while the promotional budget amount has slightly decreased, the average promotion salary increase received by an individual has increased by 1.5%."

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 2018. The chart contains the annual limits through 2017 for various employee benefits 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.

Article Sources

  1. Bureau of Labor Statistics. "Employment Cost Index, December 2020." Accessed Feb. 5, 2021.

  2. Society for Human Resource Management. "Fewer Workers Will Get Pay Raises in 2021; Bonuses Gain Ground." Accessed Feb. 11, 2021.

  3. Society for Human Resources Management. One-Third of U.S. Employers Trim Projected Pay Raises for 2021." Accessed Feb. 11, 2021.

  4. Mercer, "Moving forward with optimism." Accessed Feb 11, 2021.

  5. Mercer. "Key Findings: Mercer’s 2019/2020 US Compensation Planning Survey". Accessed Dec. 13, 2019