January 23, 2019 – When it comes to compensation, this may well be a year that will make neither companies nor their workers very happy. Companies are expected to keep raising salaries this year — 5.1 percent, on average, according to the recently released Korn Ferry’s annual global salary report. But after accounting for inflation, real salary growth will only be one percent, even lower than last year’s 1.5 percent forecasted increase.
“The percentage of salary increase or decrease will vary by role, industry, country and region, but one thing is clear, on average, employees are not seeing the same real pay growth they did even one year ago,” said Bob Wesselkamper, Korn Ferry’s global head of rewards and benefits solutions.
Analysts say the situation is bound to create some frustration. Companies are spending more money on employees, but that extra cash isn’t really helping workers build much wealth.
In North America, for instance, the average salary growth is predicted to be 2.8 percent in 2019, according to Korn Ferry. But when adjusted for inflation, the real-wage growth is expected to be 0.6 percent, down from last year’s one percent. The outlook for South American salaries is slightly better, with salaries rising 4.6 percent, on average, or 1.3 percent after inflation. Nevertheless, 1.3 percent is still lower than the 2.1 percent growth that was projected for 2018.
Eastern Europe employees, meanwhile, are expected to get higher real salary increases than their Western European counterparts, said the report. Salaries in Eastern Europe are expected to rise 6.6 percent in nominal terms and two percent after inflation, an improvement on last year’s 1.4 percent increase. In Western Europe, salaries are expected to grow only 2.5 percent and just 0.7 percent after inflation.
The best real salary growth will happen in Asia, according to the report. Salaries are forecast to increase by 5.6 percent, up from 5.4 percent last year. Inflation-adjusted real wage increases are expected to be 2.6 percent, the highest globally, but down from 2.8 percent last year.
The rest of the world will not see anywhere near as much growth. In Africa, companies will be raising salaries 7.7 percent —the highest increase in the world. Go past the headline, however, and the raise is a modest 0.9 percent after inflation. In the Middle East, after-inflation salaries are expected to rise just 0.4 percent. Salaries in the Pacific region (which includes Australia and New Zealand), will grow only 0.3 percent after inflation.
In response to the mediocre wage increases, Korn Ferry’s experts said that leaders regard salaries as part of an overall compensation package. Because inflation is eating away gains, employees might appreciate different benefits, such as more days off, a flexible work schedule, or increased pension plan contributions.
Wage Growth Seen in Most Recent Quarter
Wages for U.S. workers grew 3.5 percent over the last year, increasing the average wage level by 95 cents to $27.81 an hour, according to the latest ADP “Workforce Vitality Report. The report tracks the same set of workers over time, which provides a more insightful picture of wage growth than overall wage growth.
Or, as Benjamin Frost, Korn Ferry’s global general manager for pay, said: “We recommend that companies take a broader perspective by defining and agreeing upon their own measures of cost drivers, business strategy, and local trading conditions.”
A Different Take
U.S. employers are projecting slightly larger pay raises for employees in 2019 as the unemployment rate has fallen sharply and the job market has tightened, according to a recently released Willis Towers Watson report. The survey also found employers rewarded their top performers with the biggest raises this year and are projecting modestly larger discretionary bonuses next year in their ongoing effort to reward and retain the best performing employees.
The “General Industry Salary Budget Survey” found that U.S. employers expect to give exempt, non-management employees (i.e., professional) average pay increases of 3.1 percent in 2019, compared with three percent this year. Non-exempt hourly employees can also expect larger increases next year — three percent in 2019 vs. 2.9 percent last year.
“After a decade of consistently flat pay raises, we are witnessing a slight uptick as companies are feeling pressure to boost salaries, given the low unemployment rate and the best job market in many years,” said Sandra McLellan, North America rewards business leader at Willis Towers Watson. “While companies have been able to hold the line on raises, the tides are changing.”
“Many companies are establishing slightly larger salary budgets while at the same time focusing on variable pay such as annual incentives and discretionary bonuses to recognize and reward their best performers,” she said.
CEO Wage Growth
According to a recent report by Korn Ferry, CEOs at the largest companies in the U.S. last year received the highest compensation increases since the recession. “Even with the anticipation of the CEO pay ratio disclosure mandate, so far we haven’t seen it dampen organizations’ willingness to pay for performance, including strong shareholder value and net income increases,” said the search firm’s 11th annual “CEO Compensation Study.”
The study examined pay for CEOs at the nation’s 300 largest public companies, included. Median revenues for the 300 businesses were $18.7 billion.
Pay for Performance: Not Everyone Agrees On CEO Value
Public company directors give CEOs considerable credit for corporate success, believing that 40 percent of a company’s overall results, on average, are directly attributed to the CEO’s efforts, according research released by Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University.
Median total direct compensation (TDC) for CEOs increased 8.7 percent to $13.4 million, said Korn Ferry. That is twice as much as last year’s 4.2 percent increase in TDC and the highest percentage increase since 2010, the first year of recovery from the Great Recession. While year-over-year base salaries remained relatively flat, with a 1.5 percent increase to a median of $1.3 million, a large percentage of the TDC increase came from performance-based compensation growth, said the study. Annual bonuses were up 4.1 percent. And LTIs (long-term incentive value) were up 7.4 percent.
“In years past, we’ve seen LTI increases but not bonus increases,” said Donald Lowman, Korn Ferry executive pay and governance practice leader for North America. “However, this year we are seeing increases in both areas. Even with the anticipation of the CEO pay ratio disclosure mandate, so far we haven’t seen it dampen organizations’ willingness to pay for performance, including strong shareholder value and net income increases.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media