If your organization is in the process of determining compensation for the rest of 2011 and budgeting for 2012, here are 5 important pay trends that you should know related to salary increases and bonuses.
1. Employers are planning salary increases.
The percentage of employers planning salary freezes continues to decrease from 2009, and the number of organizations projecting salary increases continues to rise. In fact, research shows that 82% of employers are providing increases in 2011 and 89% are projecting increases for 2012. This compares to only 55% in 2009 and 59% in 2010 and is approaching 2008 levels when 90% of employers gave increases. These findings are consistent with other national studies which suggest that salary freezes are on the decline.
2. Average salary increases continue to be modest.
Although more employers are planning increases than in the past, they will be modest, hovering around 2.8%-2.9%, which are the average projected increases for 2011 and 2012 cited by numerous surveys. Nonetheless, increases are approaching 3% and some organizations are even exceeding 3%, although very few organizations are budgeting more than 4%. Most compensation experts, however, believe that 3% will be the new 4%. These projections and insights are common across not only our local findings, but also those of WorldatWork, Aon Hewitt, and Towers Watson.
3. Few organizations are recovering pay.
Another trend that has been consistent across numerous compensation budget studies is that few employers are reporting high recovery increases to boost employees’ pay to market levels in spite of their pay freezes over the past few years. Because of this trend, employers may be faced with challenges in retaining employees and especially top talent. This year, studies have shown an uptick in employees dissatisfied with their organization’s compensation practices, especially among those organizations that have not provided increases over the past few years.
4. Merit increases remain the most common.
Merit increases continue to be the most common type of increase provided by organizations, according to most compensation studies, and are differentiated by performance level (by approximately 1.5-2%). Top performers can typically expect increases of 4-5% on average; however, this varies widely by industry. Cost-of-living and across-the-board adjustments are less common, but still used by some employers.
5. There is a positive outlook for bonuses.
Not only are employers continuing to offer bonuses, but they also are more able to fund them. A study conducted by Towers Watson shows that many organizations are experiencing stronger performance in terms of profits and as a result, they expect that annual bonuses will be fully funded in 2011. Bonus trends for 2011 seem to be more positive for many organizations compared to the preceding years. Additionally, other pay for performance trends remain strong including differentiation of merit increases.
Overall, many studies indicate that the outlook for pay is moving in a positive direction with fewer salary freezes, slightly higher pay increases, and more funding for bonuses. Nonetheless, market adjustments continue to be an area where many employers are lagging and should keep in mind the possible detrimental effects of not recovering pay from salary freezes.
View ERC's Wage & Salary Adjustment Survey Results
The survey reports data from Northeast Ohio organizations regarding their actual and projected wage and salary adjustments.