Ever since the great recession of 2008/2009, economists have grown increasingly perplexed by the lack of real wage growth in the U.S. economy despite improving unemployment trends. Even with a 4.4% unemployment rate, real wage growth has been elusive and hovered between negative 1% and positive 1% for years now.
Of course, it all could have something to do with the ~95 million people who have given up looking for jobs and/or the massive transition to part-time laborers in the Obamacare era, but we're just spitballing here.
Regardless of the reasons, according to a new survey from Aon Hewitt, the downward pressure on U.S. wage growth is unlikely to subside in 2018 with many employers saying their wage growth will be flat YoY. Per the Wall Street Journal:
Businesses are planning to keep budgets for raises relatively flat in 2018, while continuing to devote more payroll dollars to performance-based pay, according to a survey of salary planning at 1,062 organizations conducted by consulting firm Aon Hewitt.
Despite low unemployment and increased competition for talent, companies are bearish on across-the-board pay raises, said Ken Abosch, an Aon Hewitt executive who works on the annual survey, now in its 41st year.
“Organizations are expressing reservations about the years coming and, for the first time since the recession, are signaling doubt or uncertainty about what they think their performance will look like in the coming year,” he said.
Moreover, in a move that will undoubtedly draw the ire of Bernie Sanders and his socialist followers, companies are increasingly saying that a higher percentage of their overall compensation will be dedicated to merit-based bonuses.
Companies are paying to keep their highest performers happy and in place, with an average 12.5% of payroll going to incentive and bonus pay next year.
Overall, two-thirds of the organizations in the survey said they will use merit pay to show workers who’s doing a good job, and who could stand to improve. Of those companies, 40% said they would reduce or eliminate raises for low performers. And some high performers will have to work harder next year—15% of the companies changing merit pay say they will set more aggressive targets for bonuses and incentive pay.
Lindenwood University, a liberal-arts school near St. Louis, Mo., recently introduced a merit pay system for the school’s staff of 950. Previously, there was no formal structure for rewarding performance.
High performers get rewarded for their extra effort, said Dr. Deb Ayres, the university’s vice president of human resources. “They’re not getting the same small increases as everyone else. It’s very motivating for them.”
All of which is just a long way of confirming that "if you like your stagnant wages, you can keep your stagnant wages."