Dive Brief:

• One in three U.S. companies are lowering their projected salary increases for 2021 amid concern over weakened financial results and budgetary restraints, a survey of 705 U.S.-based employers from global advisory company Willis Towers Watson found. Despite these pandemic-related concerns, two-thirds of employers expect to fund their annual short-term bonuses.

• "Pay increases and bonuses comprise a significant proportion of any organization's budget," Adrienne Altman, managing director of rewards at WTW, said. "Under a quarter of companies said they're likely to provide discretionary bonuses."

• The survey, conducted in late September, found 35% of respondents reduced their projected 2021 salary increase budgets from earlier projections, while 50% kept them unchanged.

Dive Insight:

Two-thirds of respondents cited anticipated weaker financial results as well as cost management-related concerns, such as budget cuts, as their primary reasons for lowering salary expectations.

All employee groups, aside from executives, are projected to receive a 2.6% salary increase in 2021. Those include exempt, non-exempt, management, salaried and hourly employees. 

Executives, on the other hand, are projected to receive slightly smaller increases (2.5%). 

An earlier Willis Towers Watson survey, conducted between May and July, found companies projected salary increases of 2.8% for all employees next year, and while 84% of employers plan to deliver pay raises on schedule, about one in six employees will not receive a pay raise in 2021.

"The pandemic [has] led employers in virtually every industry to rethink their compensation plans and budgets for the coming year," WTW North America Rewards practice leader Catherine Hartmann said. "For many companies, reducing salary budgets, and in some cases, suspending pay raises, was the most viable option, as they balance remaining competitive with maintaining financial stability."

The survey also found two in three employers (66%) are planning to award annual performance bonuses next year while less than 10% don’t expect to do so. The remaining 26% are undecided. 

Among respondents planning to pay bonuses, 58% expect the bonus pool funding level to reach or exceed target level. Executives (91%) and management (87%) employees are the most likely to receive bonus awards; non-exempt hourly employees (63%) are least likely.

"Employers remain laser-focused on their ability to attract and retain talent during these challenging times," Hartmann said. "Annual performance bonuses can play a significant role in helping employers achieve those goals, when faced with less-than-robust salary increases."