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Salary Increase Budgets Fall for First Time in 12 Years

Total United States salary budget increases fell for the first time in a dozen years, according to WorldatWork’s “2020-21 Salary Budget Survey.”

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Respondents, who took the survey during the COVID-19 economic fallout, said the average salary budget hike will be 2.9%, a pronounced departure from the projected increase of 3.3%.

Contributing to the decline in average salary increase budgets is the significant increase in the percentage of organizations indicating a 0% salary budget increase for 2020 – nearly 10 times higher than 2019. Meanwhile, respondents typically budgeting in the 3% to 4% mean range declined by 7 to 10 percentage points, depending on industry sector.

Yet, 84% of organizations expect to pay some form of salary increases in 2020.

The last time the survey saw a decline in salary budget increases was during the Great Recession of 2008-09. An updated survey will be fielded in October to offer further insights into salary budget strategies during the pandemic.

“As the economy recovered following the financial collapse in 2008, we first saw a gradual rise in salary increase budgets, then a leveling off. But over the past two years with low unemployment rates and increased competition for talent, we saw a bigger jump in salary increase budgets,” said Sue Holloway, Director, WorldatWork. “Now, the sudden jolt of the pandemic has driven a higher percentage of organizations indicating a zero salary increase budget for 2020. More than 70% of companies are still giving increases in the 3% to 4% range.”

The 47th annual survey, the longest running of its kind, provides CEOs, Chief Financial Officers and HR professionals with comprehensive, year-over-year data to design competitive compensation plans and total rewards strategies that attract and retain high-performing employees. The data covers nearly 14 million employees from 19 countries.

A total of 4,754 organizations responded to the survey while addressing unprecedented business challenges, down less than 10% from 2019.

Among the highlights of the survey:

  • Industry: While most industry shifts in salary increase budgets are downward, public administration and accommodation and food services were least affected this year, showing no change from 2019. Although stable this year, public administration is projected to have one of the largest falls in 2021. At 1.5%, educational services saw the lowest salary increase budgets.
  • Merit pay: Average merit increase budgets for 2020 were reported at 2.6%, a 0.3% drop from 2019.
  • Performance-based pay: Even though the size of all salary increase budgets, including merit budgets, declined in 2020, organizations continue to differentiate base pay-related awards. Average performance-based pay increases for 2020 are expected to fall to 2.5% for middle performers and 3.6% for high performers.
  • Pay-equity adjustments: 65% of responding organizations expect to make pay adjustments in 2020 to remediate pay equity issues, and about the same number are anticipating pay equity adjustments in 2021.
  • Metro areas: Denver and Seattle saw the largest average salary increase budgets in 2020.
  • Around the globe: India saw the largest swing in salary increase budgets, dropping from 9.9% in 2019 to 8.4% in 2020. However, India’s 8.4% reflects the largest salary increase budget in the world.

2021 salary budget increases will likely mirror 2020, respondents predicted. But those projections could change with the October updated survey,

“We recognize the impact of the pandemic will lag,” Holloway said. “The October results of the updated survey will give a better indication of the future state of salary budgets.”

About the Author

Jim Fickess Bio Image

Jim Fickess writes and edits for WorldatWork.


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