U.S. employers project raises of 2.8 per cent in 2021

'This has been the most challenging compensation planning year since the Great Recession'

U.S. employers project raises of 2.8 per cent in 2021
Most employers will be in a cash preservation and cost optimization mode for 2021, says one expert.

More than nine in 10 (93 per cent) companies in the U.S. are planning to give employees salary increases and bonuses in 2021, according to a survey by Willis Towers Watson.

Employers are projecting average increases of 2.8 per cent for all employees, including exempt, non-management and management employees, while non-exempt salaried and hourly employees, as well as executives, are expected to receive increases of 2.7 per cent.

This is in line with the increases ranging between 2.5 per cent and 2.7 per cent this year, but below the three per cent companies had budgeted before the pandemic hit.

“This has been the most challenging compensation planning year for many companies since the Great Recession. However, unlike then, companies have been hit differently depending on their industry, the nature of how work gets done and the type of talent they need,” says Catherine Hartmann, North America Rewards practice leader at Willis Towers Watson.

“While many companies managed to avoid cutting salaries during the pandemic, most have reduced the size of this year’s salary budgets and are holding the line on increases for next year. At the same time, companies continue to embrace variable pay and other reward initiatives to recognize and help retain their best performers.”

Among industries, employees in the insurance and non-durable goods industries stand to receive increases of between 2.9 and three per cent, while those in healthcare and retail industries are expected to get between 2.6 and 2.8 per cent in increases.

Performance and bonuses
Employers continue to reward star performers with significantly larger pay raises than average-performing employees, according to the survey. Those receiving the highest possible rating in 2020 were granted an average increase of 4.7 per cent -- 68 per cent higher than the 2.8 per cent increase granted to those receiving an average rating.

Also, more than three-quarters (76 per cent) of employers are planning to award annual performance bonuses next year, roughly the same percentage as this year, found the survey of 1,010 companies conducted between April and July 2020.

Bonuses are projected to average 11 per cent of salary for exempt employees, 6.8 per cent for nonexempt salaried employees and 5.6 per cent for hourly employees.

“Most companies will continue to be in a cash preservation and cost optimization mode regarding their budgets. And although many companies are looking toward stabilizing their business next year, the full extent of the economic impact of the pandemic is yet to play out,” says Hartmann.

"Companies will remain cautious and continue to adopt strategies that attempt to balance employee engagement with protecting their core business. This could call for further segmented allocation of base salary increases and use of discretion to preserve incentive payouts for companies that don’t reach performance targets.”

A previous survey found that many employers were not planning to adjust compensation during the pandemic.

However, a Conference Board of Canada survey in April found that a majority of employers were implementing pay cuts and pay freezes  on out-of-cycle increases.

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