The World Cup may have come and gone, but global compensation professionals are continuing to flex their predictive and analytical muscles this time of year as the eyes of organizations around the globe are on them to score a goal when it comes to their 2019 salary budget projections.
Global Salary Increase Projections
A sneak peek at Aon’s Global Salary Increase Survey for 2018/2019, which covers nearly 130 countries around the globe, shows that 2018 salary increases worldwide were higher than 2017 inflation. As a result, employees saw an improvement in their purchasing power.
We forecasted last year that 80% of countries would experience wage increases higher than the rate of inflation in 2018; results were very close to that at 77%. We expect to see that number jump to 91% in 2019. This trend is expected to continue, and we expect the increase in employees’ purchasing power to be even higher next year.
The below charts show the highest salary increases by region.
Figure 1
Figure 2
Companies in all parts of the world have generally been seeing growth in their salary budgets. We consider this to be an indicator of a healthy improvement in the overall world economy.
We should note that these numbers are preliminary: We’re still collecting U.S. data and global data over the next week and will provide a more comprehensive overview of results and insights — including a global geographic breakdown of this year’s highest projections — once the data is finalized in the coming weeks.
Meanwhile, the U.S. is among the countries where salary increases are greater than inflation, and are also currently projected to be for 2019. That said, U.S. salary increase budgets are not growing at the same level as other countries. One of the reasons is that many U.S. organizations use variable pay for rewarding employees based on performance, instead of adding to fixed pay.
This chart, based on Aon’s Global Salary Survey research, shows a 5-year year-over-year trend of projected vs. actual budgets based on our preliminary results.
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The good news is that even though U.S. salary increases are growing comparatively at a slower pace as some other countries, the fact remains that budgets continue to remain greater than inflation.
Building a Salary Increase Budget
If you’re leading the HR or compensation function, you’re surely facing challenges in coming up with the right approach for your company. On one hand, you hear from employees and managers about how continued small budgets that barely keep up with inflation are creating retention problems. On the other hand, business leaders need to keep costs in check. Striking a balance between those competing interests can be difficult, but here are some practical tips to plan your 2019 budgets most effectively.
- Differentiate Performance and Rewards. Even though the size of the merit pool is small, we believe it continues to be important for organizations to calibrate performance and identify the top performing talent. We hear from some that the small budgets make it seem futile. Granted, the absolute size of the differentiation is small, but the message you send to those top performers can still be powerful.
- Use Targeted Adjustment Budgets. If you do go down the path of budgeting separately for market adjustments, you may want to consider:
- Functions or business units that are strategically more critical
- Areas where turnover is highest
- Areas experiencing the most difficulty in recruiting
- Enhance Variable Pay. Extending variable pay plans deeper into the organization allows you to reward performance while not growing your fixed costs. Some organizations report having no differentiation in the size of variable pay awards based for top performers compared to average performers, so there is opportunity for improvement.
- Educate and Communicate. Effective organizations are spending time and resources to communicate and educate their workforce. It’s important for your front-line managers to be fully conversant on the messaging you have put together around pay since they are arguably in the best position to deliver the compensation messages.
Contact us to find out how you can purchase your copy of this report to aid in your compensation planning for 2019, or if you need help analyzing the economic indicators in other regions where you operate.
