The unknown new territory presented to corporations and their budgets by the Tax Cuts and Jobs Act of 2017 has left the majority of American companies holding salary and promotion budgets steady, according to a survey of what employers expect to pay their workers.
Mercer’s 2018/2019 US Compensation Planning Survey (https://www.mercer.us/our-thinking/2018-united-states-compensation-planning-survey-executive-summary.html) which was updated in December, surveyed more than 1,500 organizations. Within the study, the group found overarching areas of concern, such as the overall retention of employee talent, the variable economic climate, and a tightening labor market.
And, in spite of a windfall of cash that came from the tax cut, it seemed as if employers weren’t exactly sure what the long term forecast held for their businesses and their budgets.
“I’m not surprised by the results,” said Mary Ann Sardone, a partner and North America workforce rewards practice leader at Mercer. “We expected the companies would be moving the needle on that, because of competitive pressure and the robust labor market. But we really didn’t see that shift that much.”
Sardone said there is inherent inertia in instituting salary raises, especially from a merit-based perspective.
“Having to make a decision to move around millions and millions of dollars to your fixed cost comes with a lot of hesitation,” said Sardone. “There’s a lot of benchmarking of what everyone else is doing and that’s traditionally the main source of information. So, when everyone’s looking at everyone else and no one’s moving first, we traditionally don’t see a lot of big changes.”
Sardone also said corporate reward systems are changing from company to company. As such, career advancement becomes that much more important, companies are making an effort to train from within, especially given that outside hires tend to be roughly 20 percent more expensive than an internal hire.
When the new tax law went into effect, few, if any, organizations knew what to expect outside of an initial windfall. There was also the question of what would find its way into weekly employee pay. Per Sardone and the Mercer study, the overall effect on employees’ weekly pay seems to have been nominal, especially after the introductory period.
“I think the initial reaction that employers had delivering a one-time increase or a spot
bonus of $1,000 was very popular and provided a lot of good PR; we really didn’t see a lot of those investments translating into increasing base salaries of employees” said Saldano. “By the end of 2018, everyone just sort of went back to business as if it didn’t happen.”
Where salary raises and promotions are concerned, there’s neither a magic number as to what to provide to employees, nor a specific technique that can be applied. Each organization is different. In the end, it might not be about base salaries any more, especially if an organization is trying to draw the very best performance out of its employees.
“Everyone is trying to reexamine this process, because it just doesn’t feel like it’s effective from the employee’s standpoint, or the organization’s standpoint. There’s a lot of discussion and chatter about rethinking the model, said Saldano. “There’s a lot of experimentation going on right now.”
In the end, 2019 might be akin to either a testing ground or an overall land of confusion for many organizations as they work to figure out the new tax code, where they stand in it, how they reward and promote their employees, and how they retain their best talent while drawing new talent in.
“I would say 2019’s going to represent some level of disruption in the way in which we reward employees for their performance,” concluded Saldano, who stated that no matter what happens this year, it can still be studied and learned from.