Pay Freezes Were Common in 2020; Employers Stay Cautious with 2021 BudgetsFebruary 23, 2021
Only 64 percent of U.S. organizations gave base pay increases in 2020, down from 82 percent that raised salaries in 2019, new research shows.
The results were reported in February by compensation data and software firm PayScale in its
2021 Compensation Best Practices Report, and are based on more than 5,000 responses from compensation managers at U.S. and Canadian companies surveyed from November 2020 to January 2021.
For organizations still giving base pay raises, the average percentage increase in salary budgets has not changed much, with a majority of employers citing increases of 3 percent or less for 2021, although pay raises will be greater at top-performing organizations—those that exceeded revenue goals.
Bonuses were less common, as well. Organizations that offer performance-based variable pay dropped from 73 percent to just under 70 percent between 2019 and 2020, PayScale found.
“Companies should always stay agile to respond to changing dynamics,” said Shelly Holt, PayScale’s chief people officer. “During times of economic uncertainty, retaining your top talent is key—especially with limited resources. Even if the median pay raise remains at 3 percent, having performance-based and differentiated rewards, such as variable-pay bonuses and larger pay increases for top performer, coupled with a clearly communicated and transparent compensation structure and strategy, is critical.”
Among the firm’s other findings:
- Pay freezes. Although a majority of organizations did not issue pay freezes in 2020, pay freezes were the most popular response for employers that took any action on pay in response to the pandemic. Pay freezes were most likely to be applied company-wide if they were an option at all, followed by freezing pay for executives and highest earners.
- Pay equity. In 2021, 46 percent more organizations are pledging to conduct pay equity analysis to ensure employees are paid fairly regardless of race and gender, compared to 38 percent last year. In addition, 80 percent of employers say that paying employees fairly is important to foster engagement and retention.
- Sources for salary market data. Most employers (77 percent) are using either traditional surveys or paid online market data sources to drive their salary setting. A majority of respondents (60 percent) said that they also use free online salary data. Organizations frequently use multiple surveys to make sure they have enough sources to validate the accuracy of salaries for their employees.
- Pay transparency. Most organizations (55 percent) said letting employees know their pay range can help them understand how to grow into their position; however, only a third currently share pay ranges for other positions with their employees.
Greater pay transparency “can help uncover bias and lead to a more inclusive workplace,” Holt said.
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