Illustration by Ryan Etter—Getty Images/Ikon Images

Overall U.S. wage growth is still stalled or even shrinking, says one study. But pay-for-performance is skyrocketing.

By Anne Fisher
July 15, 2015
July 15, 2015

Ever feel like you’re working harder for less money? It’s probably not all in your head.

Although it’s well-known by now that wage growth hasn’t kept up with productivity gains in recent years, the trend in base pay is even worse than most people realize. In the second quarter of 2015, unlike the one before it, average inflation-adjusted wages in the U.S. actually fell 0.5%. The average 12-month increase was only a barely perceptible 0.3%.

That’s according to the latest quarterly report from compensation data site PayScale, which measured what people earned across 15 U.S. industries. The rest of this year isn’t looking much better. PayScale predicts that wage growth will be a measly 0.2% for the third quarter, and just 0.4% for the year. Even more sobering, the report notes, real wages are down more than 8% since 2006.

Even high-demand STEM fields are feeling the pinch. Wage growth in IT stalled in the second quarter, dipping by 0.4%, while pay in engineering and biotech slid by 0.1% and 1.1% respectively. Some metropolitan areas are doing better than average, but not by much. Consider: The top three U.S. cities with the biggest wage gains were Tampa (up 1.5%), Seattle (1%), and Minneapolis (0.6%).

Ready for some good news? If you want to earn substantially more money this year, you probably can. Most employers aren’t handing out less money than in the past, they’re just doing it differently. While overall wages are stuck in neutral or reverse, incentive pay is speeding ahead. Almost all (91%) of the 1,064 companies in Aon Hewitt’s most recent compensation survey now offer bonus programs for salaried employees, partly as a way of attracting the hires they want.

Competition for scarce talent means “we are seeing even industries that have traditionally shied away from providing bonuses, such as higher education and the federal government, realizing they have to establish variable-pay programs,” says Ken Abosch, Aon Hewitt’s compensation and market development leader.

Likewise, employers are figuring out how to allocate bonuses even for jobs that used to pay only a flat salary. “Companies are much more focused on specific processes,” says Leslie Stretch, CEO of CallidusCloud, which makes software for tracking sales and marketing performance but has lately branched out into measuring results in other kinds of work.

Some managers have always been offered bonuses for tasks like mastering new software or bringing in a project under budget, but these days, “people who manage accounts receivable, for instance, are getting bonuses for bringing in cash collectables,” Stretch observes. “Lawyers are eligible for bonuses based on effective contracts. It’s possible to measure the outcome in almost any job now, so you can reward people accordingly.”

That may not be a bad thing. “Traditionally, managers were paid bonuses based on the whole company’s performance, not the individual’s,” notes Stretch. The new approach is “a powerful tool for retention. It may be a relatively small component of overall pay, at least in non-sales roles. But it is something the employee can control.”

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