Top 5 (Unexpected) Considerations When Preparing Your 2020 Salary Budget

October 8, 2019
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Author: ThinkWhy Analyst

Despite a tight labor market and stiff competition for talent, 2020 wage increases will be incremental for most U.S. employees. What should you target in terms of salary increases to align with the market? Here are the top five things to consider when planning your salary budget for next year.

Budgeting for 2020 Salaries Using Key Economic Drivers

Slowing Economic Growth

Moderate economic growth should be expected for the rest of 2019, with progress slowing for 2020. Because economic growth is cyclical, it only stands to reason that the next stage is on its way.

Job growth will average about 1.9 million for this year and next, with gradual deceleration through the third quarter of 2021. Leisure and Hospitality will see the highest job growth for 2020, followed by professional and business services and construction. The economic landscape should be a strong consideration as budgets are prepared with uncertainty surrounding trade and tariffs is expected to prompt some businesses to pause spending.

Planning for Small Wage Increases in a Tight Market

Even in a tight labor market and an unemployment rate of 3.5 percent, wage increases are expected to be incremental. According to the 2019 General Industry Salary Budget Survey, 96 percent of employers plan to give raises at a rate of 3.2 percent for executives, 3.2 percent for exempt employees and 3.1 percent for nonexempt employees. Similarly, WorldatWork’s 2019-2020 Salary Budget Survey projects that U.S. salary budgets will be slightly higher at an average mean of 3.3 percent in 2020.

The Jobs You Employ and Your City

In addition to salary surveys, it is important to look deeper into the jobs a business employs and cities where the business operates. Supply and demand still matters. Increasing demand for specific occupations may require higher annual increases than the national average to stay competitive and prevent turnover.

Have you ever allocated less of your salary budget to a high performing accountant compared to a lower performing but harder to hire software developer? Although it seems counter-intuitive, knowing the demand for jobs and the state of the economy of each business location allows companies to take a more detailed approach.

Individual Performance Still Matters

A key consideration for most organizations is still individual performance. The highest rated employees may realize a 4-5 percent increase. The lowest performing employees may realize negligible increases around 1 percent. Examining mid-year reviews should help you elect those that should be on the track for the highest increases based on performance.

A Price Tag On Your "Uniques"

While many salaries are expected to gradually climb up next year, every organization has its unique mix of benefits that impact job retention and longevity but can be hard to put a number on. Highlighting these for employees may allow them to see the added value outside of base salary increases.

Some companies elect to provide a total compensation calculation for items like paid time off, paid parental leave and company contribution to 401K and benefits. For companies that may not have the budget for substantial increases across the board, these considerations will allow HR and executive teams to still carry a strong message.

Strategic salary decisions require a great deal of thought outside of just using the available budget. Thinking about labor metrics wholistically will allow HR teams to make more precise calculations to preserve a company's scare resources.