As business leaders around the U.S. develop their 2021 operating budgets, the shadow of COVID-19 has forced nearly half of organizations (45 percent) to reevaluate salary-increase plans, according to Gallagher’s 2020/2021 Salary Planning Survey. Researchers collected data from 1,283 organizations during July and August 2020.

The Gallagher study paints a picture of the stark contrast employers currently find themselves in compared to the beginning of 2020. When the year began, organizations felt primed for growth with a robust economy and record-high employment. As a result, two-thirds (66 percent) of employers implemented pay raises prior to the pandemic. Toward the end of the first quarter the reality of COVID-19 set in, forcing many organizations to put the brakes on wage hikes. This trend will continue into 2021, according to the employers surveyed. Among the segment of employers that indicated COVID-19 is forcing them to reevaluate 2021 salary-increase plans, more than half (51 percent) expect to reduce salary increases and 45 percent plan to suspend salary increases altogether.

The 2020/2021 Salary Planning Survey findings align with Gallagher’s 2020 Benefits Strategy & Benchmarking Survey, which found a significant number of employers planned salary freezes for management and executives (43 percent) and non-management personnel (42 percent) to preserve jobs in 2021.

“Revenue streams and budgets will be unpredictable in 2021 and for these reasons, many employers are pausing across-the-board salary increases,” said William F. Ziebell, CEO of Gallagher’s Benefits & HR Consulting Division. “However the data shows more employers are leaning into variable pay models because this allows them to provide employees with a pay increase based on performance.”

With the continued economic uncertainty, Gallagher’s Salary Planning Survey Report is designed to be a tool for employers to evaluate the array of salary-budgeting tactics their peers are utilizing to maintain headcounts and balance budgets.

“Employers of all sizes are beginning to realize pay increases aren’t the only levers they can pull to attract and retain employees,” Ziebell said. “Oftentimes, customized benefits and compensation strategies can reduce operating expenses and, at the same time, better cater to employees’ physical, emotional, career and financial wellbeing.”