Have you determined your 2021 budget?

July 28, 2020

Findings of Mercer’s US Compensation Planning Survey – July edition. Questions and findings change with each survey edition so be sure to check out the full series of articles.

Compensation planners remain uncertain about 2021

According to the July Pulse for Mercer’s Compensation Planning survey, most organizations have not yet finalized their 2021 annual increase budget. Of the 536 organizations that participated in the survey, 88% indicated that they were either “still discussing”, were unsure, or hadn’t even started the process of determining their annual increase budget. Of the remaining companies, 1/3 of them indicated that they would be freezing salaries.

With such a small sample (n=64) of employers reporting 2021 budget numbers, it’s still too early to really understand the average merit or total increase budget. Perhaps we will see an increase in salary freezes this year — we’ll have to wait and see. (We plan to ask these questions again in the fall, hoping many employers will have worked through some of their budgeting activities and can provide better estimates.)

Evaluating the employee value proposition

Since we know that employers are looking at redefining the employee experience, or value proposition, we asked about recognition and development programs.

As for recognition programs, employers don’t seem to be prioritizing these for change. It’s good news that the majority of respondents did indicate that they have recognition programs, with the most common forms being gift cards, charitable donations/matching, and a formal “Thank-you”/e-card program. Fifty-one percent indicated that they would maintain the status quo and were not planning on enhancing or decreasing their offerings.

Employers indicated that the top development programs they have in place are professional training/certificate reimbursement, training, and challenging/cross-functional work assignments. A small percent of respondents indicated that they were planning to enhance these and other development programs. Thankfully, an even smaller percentage indicated that they plan to reduce their development programs.

Impact of remote work on pay

You may have seen some headlines lately, coming out of Silicon Valley, that indicated employers are considering reducing pay for employees who now permanently work from home in locations with lower cost of labor (e.g., moved from San Francisco to Cleveland.) According to the July Compensation Planning survey pulse, 34% of employers are expecting that in the future only up to 25% of employees will work remotely. Just under a quarter report that they expect 25% or more of their population to work from home — this compared to approximately 18% of organizations reporting that 25% or more of their employees worked remotely pre-COVID. However, another 42% indicated that they “don’t know” or are unsure. The majority of organizations report that they do currently use geographic differentials and plan to continue. Even though more people are working anywhere with a strong internet connection, geographic differentials are not dead. How this will translate to employees that were once in higher cost of labor areas doing the same job in lower cost of labor areas is still a bit unclear and will likely vary from company to company. It may be that organizations are waiting to see how the workforce settles before making changes to how they use geographic differentials. After all, it could prove to be a cost savings — one with a negative impact on employees, but a cost savings, nonetheless.

Continued uncertainty

The nature of this pandemic, the continually shifting advice from scientists, and resulting actions of federal and local officials are certainly pushing organizations to operate with much more uncertainty. Perhaps we thought that we’d hit a point where we could return to “normal” at some point. Though in some ways this new life does seem normal, the continued uncertainty and developments do seem to be causing a delay in planning and budgeting for 2021.

All we can do is continue to collect data and make the best decisions for our organizations, weighing our risks. By participating in our next Compensation Planning Pulse you’ll received additional information that will help you finalize your 2021 plan.

Need more information? Reach out to us at 855-286-5302. Mercer’s got your back.

compensation pulse survey july infographic United States