Labor Market Update – Fall 2016

By Kimberly KeatingInsightsComments are off

The onset of fall signifies more than just chilly nights and apple cider. It is also the time of year when organizations begin to look to the upcoming year in terms of salary planning, and there is plenty of research that has recently been released to help you make the most informed decisions.

Overall, the most consistent findings across surveys indicate:

  • Actual pay increase budgets averaged 3% for the third year in a row.
  • Differentiating merit increases based upon performance continues to be a practice utilized by most organizations, as those employees who fail to meet performance expectations typically receive either no or lower increases compared to higher performing employees.
  • Projected pay increase budgets for 2017 range from 3.0% to 3.1%.

Low inflation and organizations questioning the typical annual performance cycle’s effectiveness are possible factors affecting the flat nature of pay increase budgets within the past several years. As budgets remain stable, organizations will need to look for alternative strategies to ensure they are keeping top talent.

To prepare for the coming year, we recommend a thorough review of your current pay grades in comparison to your competitors. Equally important is internal equity. Recent pay equity legislation in California and Massachusetts is an indicator of a labor environment that supports transparency around compensation and equal pay regardless of race, religion, national origin and gender.

Highlights from Recently Published Surveys

WorldatWork reports that overall pay increase budgets for 2017 will remain the same as 2016’s forecast at an average of 3.1%. The majority of industries have seen a stable pay increase budget over the past few years, with the exception of mining, quarrying and oil and gas extraction. This industry saw a significant drop in average salary increase budgets to 1.3% from 2.5% last year. In contrast, the construction, public administration and telecommunications industries have grown pay increase budgets in 2016 to 3.4%, 3.3% and 3.4%, respectively. In all employee categories, actual 2016 median salary budget increases were 3.0%. This remains unchanged for 2017’s projected median salary budget increases.

Willis Towers Watson forecasts that pay increases for 2017 will remain stable at 3%. In addition, the survey reports that organizations continue to reward high performers with larger than average merit increases. An average salary increase of 4.6% was granted to the highest performing exempt employees this year, as opposed to 2.6% provided to employees receiving an average rating.

Salary budgets for 2017 will be 3%, up from 2016’s budget of 2.8%, according to Aon Hewitt. Lower than average raises are projected for workers in the education (2.7%), transportation services (2.6%), and oil/gas production (2.4%) industries.

BLR reports that 2.5% – 3.0% is the most commonly awarded merit increase among employers awarding merit increases during 2016, with an average of 19.1% of organizations falling into this category across all employee types.

We hope you find this information useful as you embark upon compensation planning for the coming year. As always, Keating Advisors is happy to provide assistance with any of your compensation and/or talent management needs.