LINCOLNSHIRE, Ill., September 26, 2016 – Despite competition for top talent heating up, new research from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), shows U.S. employers aren’t planning to spend more on compensation budgets for 2017 — which may likely create a stumbling block for employers when it comes to attracting and retaining high performers.
Aon Hewitt’s 2016 U.S. Salary Increase Survey of 1,074 U.S. companies, projects base pay is expected to be 3.0 percent in 2017, up slightly from 2.8 percent in 2016. Spending on variable pay is expected to be 12.8 percent of payroll—unchanged from 2016.
“Challenging business conditions and strong global competition this year means many companies are holding the line on compensation spending in the year ahead,” explained Ken Abosch, broad-based compensation leader at Aon Hewitt. “However, as the job market continues to improve, stagnant compensation spending could leave many companies in a difficult position in the war for top talent. Organizations may need to either re-think their compensation strategy, or emphasize the other benefits and perks they provide as a way to attract and retain the best workers.”
According to a separate Aon Hewitt report, more than half (52 percent) of U.S. workers said they are open to new job opportunities and 44 percent are actively looking for a new job. One of the main drivers of job-seekers is lackluster compensation. Just 38 percent of workers feel they are fairly paid, yet 62 percent said ‘better-than-average pay and benefits’ is a leading workplace differentiator.
More Companies Freeze Pay in 2016
Financial challenges were also reflected in the number of companies that froze salaries in 2016. Aon Hewitt’s research showed 10 percent of organizations froze salaries, up significantly from 4 percent in 2015. Of those organizations, one-third were in the energy sector and freezes were applied across all levels including executive, mid-to-senior, junior and hourly workers.
“In order to avoid taking more drastic cost-cutting measures, such as layoffs, some companies turned to salary freezes,” noted Abosch. “As the economy continues to strengthen and job growth increases in key industries, we expect significantly fewer companies to freeze pay in 2017.”
Salaries by Industry and Geography
Workers in most U.S. cities and across all industries can expect to see salary increases in line with the national average for 2017. However, workers in the education (2.7 percent), transportation services (2.6 percent), and oil/gas production (2.4 percent) industries will experience lower-than-average raises.
Slightly lower-than-average salary increases are also projected for workers in Boston, Dallas/Fort Worth (both 2.8 percent) and Houston (2.6 percent).
Workers in some U.S. cities are expected to see higher-than-average variable pay in 2017. These cities include Houston (21.1 percent), New York City (15.1 percent), Minneapolis/St. Paul (14.9 percent) and Chicago (13.7 percent).
“Variable pay budgets vary by city year over year and depend heavily on the performance of the specific industries that are located within the city as well as the local economic conditions,” explained Abosch. “For example, the energy sector dominates Houston, which was hit with rocky financial performance this year. In 2017, Houston is expected to have the lowest base salary pay increases but the highest variable pay levels in the U.S., which allows these organizations to keep employees engaged and rewarded.”
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 Aon Hewitt, Workforce Mindset Study™ (Lincolnshire, Ill.: Aon Hewitt, 2016).