The “Unreal” Wage Growth

When it comes to compensation, this may well be a year that will make neither companies nor their workers too happy.

Companies are expected to keep raising salaries this year—5.1%, on average, according to Korn Ferry’s annual global salary report, released Wednesday. But after accounting for inflation, real salary growth will only be 1%, even lower than last year’s 1.5% forecasted increase. “The percentage of salary increase or decrease will vary by role, industry, country and region, but one thing is clear, on average, employees are not seeing the same real pay growth they did even one year ago,” says Bob Wesselkamper, Korn Ferry’s global head of rewards and benefits solutions.

Analysts say the situation is bound to create some frustration, companies are spending more money on employees, but that extra cash isn’t really helping workers build much wealth. In North America, for instance, the average salary growth is predicted to be 2.8% in 2019. But when adjusted for inflation, the real-wage growth is expected to be 0.6%, down from last year’s 1.0% The outlook for South American salaries is slightly better, with salaries rising 4.6%, on average, or 1.3% after inflation. Nevertheless, 1.3% is still lower than the 2.1% growth that was projected for 2018.

Across the Atlantic Ocean, Eastern Europe employees are expected to get higher real salary increases than their Western European counterparts. Salaries in Eastern Europe are expected to rise 6.6% in nominal terms and 2.0% after inflation, an improvement on last year’s 1.4% increase. In Western Europe, salaries are expected to grow only 2.5% and just 0.7% after inflation.

The best real salary growth will happen in Asia, according to the report. Salaries are forecast to increase by 5.6%, up from 5.4% last year. Inflation-adjusted real wage increases are expected to be 2.6%, the highest globally, but down from 2.8% last year.

The rest of the world will not see anywhere near as much growth. In Africa, companies will be raising salaries 7.7%—the highest increase in the world. Go past this headline, though, and the raise is a humbler 0.9% after inflation. In the Middle East, after-inflation salaries are expected to rise just 0.4 %. Salaries in the Pacific region (which includes Australia and New Zealand), will grow only 0.3% after inflation.

In response to the mediocre wage increases, Korn Ferry’s experts suggest that leaders look at salaries as part of an overall compensation package. Because inflation is eating away gains, employees might appreciate different benefits, such as more days off, a flexible work schedule, or increased pension plan contributions. Or, as Benjamin Frost, Korn Ferry’s global general manager for pay, advises, “We recommend that companies take a broader perspective by defining and agreeing upon their own measures of cost drivers, business strategy, and local trading conditions.”