Most Employers Expect to Give Pay Raises Next Year

Aug. 5, 2010
Study shows companies are trying to engage and retain top talent as the economy improves

Organizations plan to adjust their compensation practices for next year in response to concern over losing top talent after the past year of pay freezes and, for some, signs of economic recovery. According to Mercer's 2010/2011 U.S. Compensation Planning Survey, more than 98% of companies plan to award base pay increases in 2011.

Moreover, just 2% of companies are planning across-the-board salary freezes next year compared to 13% in 2010 and 31% in 2009.

Of the employers projecting to grant base pay increases, the average increase is expected to be 2.9% in 2011, up from an actual 2.7% in 2010, but still down from 2009 levels (3.2% average).

Unlike past years, expected salary increase levels for 2011 are even across most employee groups, however more employers are taking a segmented approach to salary increase allocations and continuing to focus on high-performing talent.

"It looks like salary raises are back and for good reason," said Catherine Hartmann, a Principal with Mercer's rewards consulting business. "The risk of losing key employees is top of mind as the economy recovers and certain labor markets improve. And while non-monetary awards such as career development and training are effective in retaining employees, employers realize that top-performing employees are loathe to going another year without an increase in pay. Investments in both cash and non-cash solutions will have a significant impact on avoiding post-recessionary flight."

Furthermore, the survey shows that short-term incentive payouts are projected to increase slightly. Overall, average payouts as a percentage of base pay for all employee groups remain stable.

Differentiation for Top Performers

As organizations struggle to balance reward programs and limited budgets with the need to engage and retain talent, they are continuing to segment their workforce and rewards based on performance. As a result, the gap between high-performing employees and those in the lower performing categories is widening significantly.

According to the survey, the highest-performing employees (14% of the workforce) are expected to receive average base pay increases of 4.3% in 2010 compared to 2.6% for average performers (35% of the workforce) and 0.5% for the weakest performers (7% of the workforce.)

Differentiation for Growth Sectors

Despite salary increases being lower than what has been experienced in recent years, variations do also exist among industry sectors. Compared to the expected average pay increase of 2.9% in 2011, organizations within high-performing industries plan to grant higher increases.

The Oil and Gas industry is among the highest with projected average pay increases of 3.5% followed by the Business/Professional Services industry at 3.2%. In contrast, other industries expect to award less in 2011, including Education at 2.6% and Real Estate at 2.5%.

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