- Companies are projecting an average salary increase of 2.8% for exempt, non-management and management employees in 2021, a survey by Willis Towers Watson Data Services found.
- Nonexempt salaried and hourly employees are in line to receive a slightly smaller increase, 2.7%, according to the firm's 2020 General Industry Salary Budget Survey. The smaller increase applies to executives as well.
- The pay increases, along with bonuses, are projected to be larger than what were provided last year, despite the economic fallout from the pandemic.
This year, companies granted employees increases between 2.5% and 2.7%, below the 3% companies had budgeted before the pandemic hit, the survey report said.
Salary increases have been around 3% for the past decade. Only 7% of companies are not planning pay increases next year, down significantly from 14% this year, an indication many organizations are projecting a turn toward normalcy in 2021, the survey report said.
Among major industry groups, health care and retail industries are projecting a slight increase but fall short of pre-pandemic levels, with salary increases projected to average 2.6% and 2.8%, respectively. Employees in the insurance and nondurable goods industries are projected to receive increases of 2.9% and 3.0%, respectively.
"This has been the most challenging compensation planning year for many companies since the Great Recession," said Catherine Hartmann, a practice leader at Willis Towers Watson. "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. 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," Hartmann said.
Companies continue to reward their best performers with larger pay raises than average-performing employees. Employees receiving their company's highest possible performance rating were granted an average increase of 4.7% this year, 68% higher than the 2.8% increase given to those receiving an average rating.
Three in four companies (76%) are planning to award annual performance bonuses next year, roughly the same percentage as this year.
Bonuses, which are generally tied to company and employee performance goals, are projected to average 11% of salary for exempt employees; bonuses for nonexempt salaried and hourly employees will average around 6.8% and 5.6%, respectively.
"Most companies will continue to be in a cash preservation and cost optimization mode regarding their budgets," said Hartmann. "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.
"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," Hartmann said.