Macroeconomics and the 2019 Merit Increase Budget

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Compensation Resources, Inc. sees a strong correlation between interest rates and upcoming merit increase budgeting

It seems like forever that the US merit increase budget has remained at approximately 3.0%. Merit increase budgets tend to be a lagging indicator (six to twelve months) of the general economy and other market forces, and as the Gross National Product (GNP) growth landscape has been relatively flat since the early 1990's, merit increases and wages have mirrored that stability.

However, various state and local regulations increasing the minimum wage are expected to place upward compression forces on the hierarchy of hourly and other non-exempt employees. Also, with a nearly full-employment economy and the decrease in the workforce as more baby-boomers exit the labor market faster than they are being replaced, the labor demand/supply curve will shift in favor of increased wages. Lastly, the country's central bank has clearly indicated (as has the bond market) that interest rates are on the rise in anticipation of inflation fears.

Interest rates and next year's merit increase percent have a strong correlation. All these factors, and others, lead to the conclusion that the upcoming merit increase budget may rise more significantly in the next few years. Starting with 2019, this may see a jump to the 3.3% to 3.5% range.

About Compensation Resources, Inc. (CRI): CRI provides compensation and human resource consulting services to mid- and small-cap public companies, private, family-owned, and closely-held firms, as well as not-for-profit organizations. CRI specializes in executive compensation, sales compensation, pay-for-performance and incentive compensation, performance management programs, and expert witness services.

Harry J. Schum, MBA
Senior Consultant
Compensation Resources, Inc.
877-934-0505 • Fax: 201-934-0737


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