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Salaries Expected to Grow in ’09 Despite Sluggish Economy

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in HR Management,Human Resources

Despite the economic gloom that’s dominated the headlines for the last year, there’s a ray of hope for employees—and perhaps a sign that employers are bullish on business prospects for 2009.

A pair of new surveys shows that employers are proceeding with plans to pay their workers more next year, continuing a trend that began following the 2002 recession.

The nonprofit WorldatWork association’s annual survey of North American employers found that pay budgets are expected to grow 3.9% in 2009. HR consulting firm Watson Wyatt projects similar growth. Its survey of U.S. employers showed that merit pay increases will average 3.5% next year. (The two surveys used slightly different formulas to determine projected spending.)

Payroll budgets growing

Preliminary results from the 35th Annual WorldatWork Salary Budget Survey show pay budgets growing steadily from 2008 to 2009 in the U.S. and Canada. The actual increase in salary budgets was 3.9% in 2008 and is projected to rise again by 3.9% in 2009, according to the survey.

Key WorldatWork survey findings:

  • For the third consecutive year, participating organizations are reporting that, on average, 91% of employees can expect to receive an increase in base pay this year. Base pay increases may come from general increases, merit increases or other increases, excluding promotional increases.

  • Employers are paying for performance as well: high performers can expect raises over 5% while below average performers can expect 2% or less.

  • Survey results indicate that very few employers are planning on offering 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.

Merit increases up too

In its survey, Watson Wyatt found that U.S. employers are planning to give workers merit increases that will average 3.5% next year, identical to the increase workers received this year and just slightly lower than the 3.6% average increase in 2007.

Companies also say they plan to provide larger raises to their better-performing employees. Employees whose performance ratings exceed expectations will receive an average merit increase of 4.4%, while those who far exceed expectations will receive nearly a 6% increase.

“The economy is no doubt taking its toll on workers, but their 2009 merit increases appear safe—at least for now,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. “Employees will view holding merit increase budgets steady as a positive sign that will help them offset inflation and higher energy and food costs.”

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.

“The economic slowdown is clearly having an effect on companies worldwide and not just in the United States. If economic conditions continue to weaken, we would expect to see many companies begin to evaluate their staffing levels, pay programs and overall organizational structures,” said Sejen.

Regional variation

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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