Here's Why You're Probably Not Getting a Raise Next Year

Summary

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Episode Overview

Episode Title: Here's Why You're Probably Not Getting a Raise Next Year
Podcast: WSJ Your Money Briefing
Host: J.R. Whelan (Wall Street Journal)
Guest: John Simons (Wall Street Journal reporter)
Date: September 19, 2017

This episode examines why, despite a growing U.S. economy and low unemployment, many American workers shouldn't expect significant raises in the coming year. The conversation delves into how companies are planning salary budgets, the growing emphasis on performance-based pay, and the mounting uncertainty affecting corporate decision-making.

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Key Discussion Points & Insights

1. Economic Expansion vs. Salary Stagnation

• U.S. economy continues to grow with the Labor Department reporting a 3% annual growth rate for the second quarter.
• Contradiction Noted: Despite robust growth and a tight labor market, companies remain cautious about pay increases.
• Quote:

  "We have very low unemployment and fierce competition for talent, yet companies are holding back on raises." – J.R. Whelan (00:44)

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2. Corporate Hesitancy & Budget Constraints

• Companies are signaling uncertainty on multiple fronts:
  • Global economic conditions
  • Domestic political uncertainty
  • Concerns about their own near-term performance
• Most firms are budgeting about a 3% increase in raises—barely enough to cover inflation and cost-of-living adjustments.
• Tougher Bonus Benchmarks: Companies plan to make bonuses harder to attain, signaling tighter overall salary budgets.
• Quote:

  "They're budgeting for about a 3% increase in raises across the board for people. And that kind of covers roughly the cost of living increases... making it harder to get bonuses." – John Simons (01:14–01:30)

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3. Shift Toward Performance-Based Pay

• Raises will be more selective and increasingly tied to individual performance rather than uniform, across-the-board increments.
• Some companies are explicitly signaling to employees that merit increases are not guaranteed; only strong performers should expect appreciable pay hikes.
• Quote:

  "We want to make sure that people don't come to expect these merit increases every year... you need to outperform your peers in order to get these appreciable increases in your pay." – John Simons (03:26–03:42)

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4. Uncertainty Unprecedented Since Recession

• It's the first time since the last recession that companies feel unclear about the future after a period of fairly rapid corporate growth.
• Survey data (from Aon Hewitt, specialists in compensation surveys for 41 years) shows companies' uncertainty covers both external (economic, political) and internal performance outlooks.
• Quote:

  "They're uncertain about their own performance in the coming year." – John Simons (02:48)

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5. Disconnect Between Labor Market & Wage Growth

• Traditional economic theory suggests low unemployment should drive wages up (especially when unemployment is below 5%), but this is not currently happening.
• Experts See a Disconnect: There's a divergence between labor market tightness and corporate willingness to boost pay.
• Quote:

  "This is really a sort of disconnect between what's happening at companies and what's happening out in the world in terms of the tightness in the labor pool." – John Simons (04:32)

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6. Impact on Non-Management & Low Performers

• Up to 40% of surveyed companies plan to reduce or eliminate raises for low-performing employees, particularly below the management level.
• This creates higher pressure on all but the highest performers and signals a move away from guaranteed cost-of-living increases.
• Quote:

  "40% of companies in this survey said that they plan to reduce or eliminate raises for low performing employees... you're going to have to really step up your game if you want some kind of increase in your pay." – John Simons (05:00–05:15)

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7. Commentary on Changing Norms

• The shift is described as a "new world order," signifying that steady, automatic annual raises may be a thing of the past for many.
• Quote:

  "Wow. Like a new world order." – J.R. Whelan (05:23)

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Timestamps of Important Segments

• Economic growth vs. wage stagnation: 00:33–01:07
• Corporate budgeting, bonus tightening: 01:07–02:06
• Performance-based pay & company messaging: 03:26–04:01
• Disconnect between unemployment and wages: 04:17–04:51
• Eliminating raises for low performers: 05:00–05:23

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Memorable Quotes

• "They're budgeting for about a 3% increase in raises across the board for people. And that kind of covers roughly the cost of living increases... making it harder to get bonuses."
  – John Simons (01:14–01:30)

• "We want to make sure that people don't come to expect these merit increases every year... you need to outperform your peers in order to get these appreciable increases in your pay."
  – John Simons (03:26–03:42)

• "This is really a sort of disconnect between what's happening at companies and what's happening out in the world in terms of the tightness in the labor pool."
  – John Simons (04:32)

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Tone & Takeaways

The episode maintains a measured, fact-based tone, mixing data insights with real-world corporate attitudes and strategies. Workers should brace for more scrutiny in performance review processes and less certainty around annual pay increases. For many, this means merit raises are no longer automatic—and for less productive employees, raises may disappear altogether.

Bottom Line:
Despite positive economic headlines, don't count on a bigger paycheck next year—unless you can prove your value more than ever.

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Transcript

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[J.R. Whelan]

This is yous Money Matters from the Wall Street Journal. Welcome to your Money Matters. I'm J.R. whalen in New York. The U.S. economy continues to expand. The Labor Department reporting a pace of 3% annual growth for the second quarter, but don't expect that to translate to a salary increase next year. The Wall Street Journal's John Simons and has some answers here for us. So, John, this would seem kind of counterintuitive. We have very low unemployment and fierce competition for talent, yet companies are holding back on raises.

[John Simons]

Yeah, that's right. In their budgeting for this year and for next year, companies are kind of signaling that they're a little sort of hesitant and that they're worried about uncertainty on a lot of fronts across the global economy. And what that means is that they are budgeting for about a 3% increase in raises across the board for people. And that kind of covers roughly the cost of living increases and sort of keeping up with inflation. And there are also a lot of companies are planning to make their benchmarks for for bonuses a lot tougher. They're sort of, you know, just clamping down on some of these budgets and making it harder to get bonuses, essentially.

[J.R. Whelan]

So it'll be a little bit more selective based on performance.

[John Simons]

That's right.

[J.R. Whelan]

Now, this is really the first time since the recession that we've seen companies a little unclear and unsure about their future because since the recession, we've seen corporate America experience pretty much rapid growth.

[John Simons]

That's right. And the people who the people at Aon Hewitt who put together this report and who have done this for about 41 years, surveying companies about how they plan to pay workers. They say that companies are signaling, like I said, uncertainty and that they're uncertain about their own performance also, not just working what's going on around the world and some of the political uncertainty here in the U.S. but they're concerned about their own performance in the coming year.

[J.R. Whelan]

We're speaking with the Wall Street Journal's John Simons about why we may not expect to get raises in our paychecks next year. And you're listening to youo Money Matters here at the Wall Street Journal. Thanks for listening, everyone. So the idea here of companies being more selective with, with raises based on performance, that is also being used, it says in your story, as a message to employees that they can improve their performance.

[John Simons]

That's right. I mean, what companies are doing is they're saying, look, we want to make sure there's one company I talked to in specific for the piece that said, you know, we want to make sure that people don't come to expect these merit increases every year. So we're basically changing the system a little bit to make it clear that you need to perform well, you need to outperform your peers in order to get these appreciable increases in your pay.

[J.R. Whelan]

It seems like kind of a tightrope for companies. It's understandable what they're doing, but at the same time, there is a lot of competition out there for talent and talent within a company's own ranks who might be looking elsewhere.

[John Simons]

Yeah, it's really curious. Usually at this point, you know, economists will say when unemployment gets below 5%, around 4.5, you know, in the areas that we've been hovering for the last maybe five or six months, economists will say that wages start to tick upwards. But everyone I talk to for the story, all the experts say that, that this is really a sort of disconnect between what's happening at companies and what's happening out in the world in terms of the tightness in the labor pool.

[J.R. Whelan]

And John, it looks like companies are looking to make a more significant change, maybe eliminating raises altogether for people below management level.

[John Simons]

Yeah, that's right. 40% of companies in this survey said that they plan to reduce or eliminate raises for low performing employees. And what that means is that it's going to be hard to just tread water at a lot of companies. You're going to have to really step up your game if you want some kind of increase in your pay.

[J.R. Whelan]

Wow. Like a new world order.

[John Simons]

Yeah.

[J.R. Whelan]

All right. That's the Wall Street Journal's John Simons in our studio. Thanks for being with us, John.

[John Simons]

Thank you very much.

[J.R. Whelan]

And thank you for listening to youo Money Matters. I'm JR Whelan in New York at the Wall Street Journal.

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