Wage Growth Seen in Most Recent Quarter

July 26, 2018 – Wages for U.S. workers grew three percent over the last year, increasing the average wage level by 80 cents to $27.46 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.

The growth, steady at three percent annual as of last month, was driven by strong wage gains for workers in the professional and business services industry representing almost 17 percent of the workforce (3.4 percent wage growth, $35.04 average hourly wage), in the Northeast (3.5 percent, $30.88) and from large businesses (3.5 percent, $28.50). Employees in the resources and mining industry saw their wages decrease (-3.7 percent, $33.84) and businesses with 500 to 999 employees experienced the slowest wage growth (1.6 percent, $28.73).

“We’re seeing interesting shifts in labor-market dynamics this quarter,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “Employment growth for new entrants has dipped to -0.1 percent, while it has increased by 4.5 percent for those who are 55 and older.”

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“In addition, job switchers who are 55 and older are seeing wage growth of 6.3 percent which is 1.5 percent higher than the prime workforce group who are 35-54,” Dr. Yildirmaz said. “This shift suggests employers are searching far and wide for skilled talent and workers who were once sitting on the sidelines have begun to return to the labor market in response.”

Growth by Sector

Among industries, information continued to lead the way for both wage level and wage growth. In addition to the top overall wage growth number of 5.5 percent, new entrants into the information field had 6.8 percent wage growth. Those who successfully switched positions to the information industry had wage growth of 9.4 percent. Employment in the information industry improved to 1.7 percent.

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According to the ADP report, job switchers in professional and business services and construction also realized high wage growth of 9.1 and 7.1 percent, respectively. In trade, the largest sector, job holders experienced stronger growth in wages than the workers who switched to the industry, 5.1 percent versus 3.4 percent.

Workers in the Northeast outpaced other regions with 3.5 percent wage growth. Employees who switched jobs to the West experienced 8.6 percent wage growth. Workers in the South had the lowest wage growth at 2.6 percent. By firm size, workers at large firms had the highest wage growth rate at 3.5 percent, with employment growth at 2.2 percent.

Related: Salaries Rising Globally; Biggest Pay Increase In Three Years

The Workforce Vitality Report also revealed that more than 20.7 percent of U.S. employees successfully switched firms in the last year. The highest level of switching was from the information industry to the professional and business services industry. Of all the information workers who switched firms, 30 percent moved to the professional and business services industry.

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.”

Related: Mixed Salary Growth Persists Nine Years After Great Recession

The study, which examined pay for CEOs at the nation’s 300 largest public companies, included those that filed proxy statements between May 1, 2017 and April 30 of this year. Median revenues for the 300 businesses were $18.7 billion.

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 long-term incentive value (LTIs) were up 7.4 percent.

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.

“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.”

Related: Wage Growth Seen in Most Recent Quarter

According to a survey released by Willis Towers Watson, pay raises for U.S. employees are expected to hold steady at three percent. The survey also found that employers will continue to reward their best performers with significantly larger pay raises as they look for ways to retain their top talent and strengthen existing pay-for-performance cultures.

“Given the continued low rates of inflation and the ongoing pressure on profit margins, employers remain cautious when it comes to budgeting salary increases,” said Laura Sejen, managing director for rewards, at Willis Towers Watson. “While most companies are feeling little pressure to increase budgets relative to what we’ve seen in recent years, many are starting to question how those budgets are spent and whether their conventional approaches to salary planning are delivering a good return on that three percent investment.”

Related: Increasing Demand for Talent Spurs Steady Wage Growth

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