Despite the economic gloom dominating the headlines, three new national salary surveys predict that U.S. employers will generally hold salary increases steady in 2009. The surveys show employers plan to award average pay increases at or near 3.8% next year, nearly identical to raises given in 2008 and 2007.
But smart employers aren’t handing out 3.8% across the board.
Increasingly during these tough economic times, organizations are expanding their pay-for-performance programs and dishing out greater increases to their top performers.
“The gap between top performers and low performers is spreading as companies struggle to sustain compensation levels throughout the organization,” says Steve Gross, leader of Mercer’s 2008/2009 U.S. Compensation Planning Survey. “Distinguishing pay increases based on performance allows employers to attract and retain employees that will contribute to the company’s competitiveness and success.”
According to Mercer’s survey of 1,000 employers, the highest-performing employees (14% of the workforce) will earn average base pay increases of 5.6% in 2009.
In comparison, “average” performers (36% of the workforce) will earn 3.3% raises, and the “weakest” performers (7% of the workforce) will only scrape up raises of 0.6% in 2009.
In addition, employers will continue to lean more heavily on bonuses rather than base-pay increases. That allows companies to pad the paychecks of valuable workers without increasing fixed compensation costs.
Other surveys also predict flat raises
In addition to the Mercer survey, the nonprofit WorldatWork association’s annual survey predicts that overall raises will hold steady in 2009. It predicts that salary increases for execs will run highest, again averaging 4.0%, while nonexempt workers will collect raises averaging 3.8%.
Key WorldatWork survey findings:
- For the third straight year, participating organizations are reporting that, on average, 91% of employees can expect to get a boost in base pay this year.
- Survey results indicate that very few employers are planning to offer their employees no raises at all.
- After seeing salary budget increases sink to historic lows in 2003 and 2004 and climb slowly from 2005 through 2008, WorldatWork says this year’s study confirms that the growth in salary budgets is holding steady, indicating labor markets are stable.
An annual salary survey by the Watson Wyatt consulting firm predicts that merit increases will hover near 3.5% percent next year, identical to the percentage that they calculated for 2008, but slightly lower than the 3.6% average increase in 2007.
Note: Watson Wyatt researchers did find one disturbing trend that could upset the compensation apple cart: A third of all employers surveyed said they have made no contingency plans should the economy continue to sour. That means pay cuts might be on the table in the future, even if companies are ruling them out now.
Increases to base salaries will also differ among all industry sectors. U.S. employers within high-performing industries, as expected, plan to grant salary increases that are up to one-quarter higher than the 3.8% national average. For example, the oil and gas industry is expected to dish out average pay raises of 5% in 2009.
In contrast, other industries—including retail and durable goods—are expect to award lower-than-average pay increases in 2009.
The WorldatWork survey found slight regional differences in payroll budget growth. By state, North Dakota and Texas will lead the nation with projected growth of 4%. A 3.8% growth rate is expected in most states.
Among metropolitan areas, a 3.9% growth rate will lead the way in 2009. That’s what workers can expect in the Boston, Denver, Houston, Los Angeles, Philadelphia, San Diego, San Francisco and Washington, D.C., areas.
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