Wage Growth Seen in Most Recent Quarter

October 26, 2018 – 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.

The growth was driven by strong wage gains for workers in the professional and business services industry, representing almost 17 percent of the workforce, (3.5 percent wage growth, $35.23 average hourly wage) and trade, representing 22 percent of the workforce, (3.9 percent wage growth, $24.57 average hourly wage). The West (4.3 percent, $29.88) and large businesses (4.8 percent, $28.84) also contributed.

“Full employment is upon us,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “This is evident in the gradual slowdown we’ve seen in overall job switching for the past year, coupled with an acceleration in wage growth for switchers. As the labor market tightened, employers focused on providing the pay and benefits that would attract and retain skilled talent, making job holders less apt to switch.”

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 6.2 percent, those who successfully switched positions to the information industry had wage growth of 9.8 percent.

Employees in the resources and mining industry saw their wages decrease (-0.2 percent, $34.91) and businesses with less than 50 employees experienced the slowest wage growth (2.0 percent, $25.56).

Workers in the West outpaced other regions with 4.3 percent wage growth and 2.6 percent employment growth. Job switchers also fared best in the West, experiencing a wage growth of 8.7 percent. Workers in the South had the lowest wage growth at 2.8 percent and the Midwest had the worst employment growth at 1.1 percent. By firm size, workers at large firms had the highest wage growth rate at 4.8 percent, with employment growth at 2.4 percent.

The Workforce Vitality Report also revealed that more than 20.9 percent of U.S. employees successfully switched firms in the last year. This highlights an overall slowdown in job switching. On the other hand, wage growth for job switchers gradually accelerated during this same time period, currently at 5.6 percent. “Given that the U.S. labor market is at full employment, and there is a shortage of skilled labor, this is not surprising as employers look to attract and retain top talent with premium wages,” the report said.

Similar Findings

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.

Despite Drop in Unemployment, Wages Remain Concern for Many Workers
With unemployment hovering at 4.1 percent, many companies face the recurring question of how to attract and retain top talent in a candidate-driven landscape. In order to remain competitive, it is essential for companies to focus on trying to boost wages…

The “2018 General Industry Salary Budget Survey” found 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 versus 2.9 percent this 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.

Veteran Recruiter Weighs In

“The focus for employers in this market is definitely on hiring the best candidates and retaining their best employees,” said Stacy Pursell, CEO of the Pursell Group. “Talent is at a premium right now. Because of that, employers have no choice but to spend more money recruiting top talent in the marketplace and also compensating the star employees they already have. If they don’t do the latter, then there is a very real risk that competing organizations will attempt to hire their best employees away.”

Related: Increasing Demand for Talent Spurs Steady Wage Growth

Professionals are more willing to change positions and change employers, especially under current market conditions, Ms. Pursell said. “One reason for this is the arrival of the Millennial generation in the workforce during the past decade,” she said. “Millennials by their very nature crave challenges, and they’re more willing to seek them out. Another reason is the scarcity of talent in the marketplace, which has created more and better opportunities for those professionals who are willing to explore them.”

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.

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.”

Related: Wage Growth Seen in Most Recent Quarter

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