The quality of a workplace raise, it so often seems, is in the eye of the receiver. The same bump in pay can leave some with a big grin, while causing others to wonder why they didn’t get more. This raises the question: What exactly is a “good” raise?
To answer that, let's put things in perspective. The average pay raise in 2019 is expected to be about 3.1%, the highest since 2008, according to professional services firm Aon's annual survey on U.S. salary increases, which is based on responses from over 1,000 companies.
Yet the amount that companies spend in their budget for so-called "variable pay" – including annual compensation and bonuses – dropped by its biggest margin since 2010. As a result, total cash compensation is actually expected to decline slightly next year, from 15.5% of payroll to 15.2%.
However, businesses expect to pay their best employees more, with an average raise of 4.6%, according to a separate survey by the advisory firm Watson Towers Willis. By contrast, workers with an average performance rating can expect only a 2.7% bump in pay.
Salaries Vary by City
The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. Next year, employees in sectors like education and transportation can expect a lower-than-average increase of 2.6% and 2.8%, respectively, according to Aon. Workers in construction are expected to see a bigger pay increase of 3.4%.
The average expected salary bumps also vary from city to city across the U.S. While most workers are expected to see increases in line with the national average, employees in two of California’s biggest cities will enjoy a higher-than-normal salary hike. The average worker in San Francisco will see a 4% wage increase, while the average employee in Los Angeles can expect a 3.7% uptick, Aon projects.
The Consumer Price Index – a measure of overall cost increases – rose 2.7% over the past 12 months. So the average worker is only marginally better off than he or she was a year ago. And those who depend on bonuses as part of their compensation package may not keep pace with inflation.
The Bottom Line
A 4% or 5% annual pay increase may not sound substantial, but in today’s environment, it's better than most.