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Why You Only Got a 3 Percent Raise Last Year

Topics: Data & Research
3 percent raise

More employers are concerned about employee retention this year, but you wouldn’t it know it from raises: PayScale’s annual Compensation Best Practices Report shows that while 84 percent of organizations plan to give raises in 2018, 73 percent estimate an average increase of 3 percent or less (the same average increment as last year).

Top performers or employees in hot jobs are often able to demand more. Last year, 40 percent of orgs gave a top increase of 10 percent or higher, and 13 percent gave top raises of 20 percent or higher.

Still, it’s hard to reconcile an average raise of 3 percent with the tightest job market in years. Unemployment currently sits at a 17-year low of 4.1 percent. Why aren’t employers giving bigger raises?

The Rise of Variable Pay

In part, it’s because they’re hoping that bigger bonuses will woo workers and keep them happy.

From the report:

In a competitive, yet uncertain, year it’s not surprising that variable pay remains a staple for organizations seeking to attract and retain the best people. In 2017 as in 2016, more than 70 percent of organizations offered variable pay. Among top-performing organizations the prevalence is even greater (79 percent vs. 70 percent of typical). Done right, variable pay has the benefit of increasing the return on your compensation investment. A well-defined variable pay plan pays out when people, teams and/or the organization succeed. Assuming that your plan does not accidentally encourage people to cheat for money, the benefits of variable pay for both organization and individual can be great.

Variable pay offers two primary advantages for employers: it doesn’t raise workers’ base pay, which means that compensation budgets don’t necessarily rise year to year, and it allows orgs to drive the specific behaviors they want to see in workers.

The individual incentive bonus remains the most popular type of bonus, with 67 percent of employers offering this type of variable pay, followed by discretionary bonuses (39 percent), employee referral bonuses (39 percent) and hiring bonuses (34 percent).

The good news for employees is that variable pay trends are moving toward more frequent bonuses: 17 percent of employers said they gave out bonuses on a quarterly basis, while 10 percent paid up monthly.

To learn more about how your pay compares to that of employees at other organizations, read PayScale’s Compensation Best Practices Report.

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Jen Hubley Luckwaldt
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