Compensation Trends: Modest Raises, Merit Rules

Manufacturers are expected to take a conservative approach to employee compensation in 2012. That means modest raises for employees and more hiring but not at pre-recession levels, according to Lena Bottos, vice president of compensation and strategic alliances at Kenexa.

Bottos says manufacturers are projected to increase salaries by 2.9%, in line with employers as a whole. Much of that compensation will be in the form of merit pay and bonuses -- compensation based on performance. In manufacturing, Bottos says, 48% of companies will be increasing their merit pay budgets, and 51% are increasing their budgets for bonuses.

This year, 92% of employers implemented performance-based pay programs, compared with 78% in 2005, according to Aon Hewitt's U.S. Salary Increase Survey. Why will performance-based pay plans flourish in 2012? "This pay mix creates greater motivation for employees to be productive and greater flexibility for employers to compensate based on individual and company performance, says Ken Abosch, Aon Hewitt's compensation group leader.

Bottos says more conservative employers are looking for new hires with broader skill sets. "If you are not hiring at the levels you were before, then if you can find people who can take on the tasks of one or two roles, you don't have to hire as much, and you have someone who becomes a jack of all trades," she says.