Having struggled with cost-containment challenges during 2009, which resulted in workforce reductions and salary freezes, more U.S. organizations are planning to grant pay increases in 2010 as the economy begins to show signs of improvement.
According to Mercer’s 2009/2010 U.S. Compensation Planning Survey Update, while challenging economic conditions drove 30 percent of employers to freeze salaries across the board in 2009, just 14 percent were planning across-the-board freezes in 2010.
Of those employers granting base pay increases, the average increase is expected to be 2.7 percent in 2010, down from an actual 3.2 percent in 2009, and slightly less optimistic than the increases planned earlier this year for 2010. Including salary freezes, average base pay increases for 2010 are projected to be 2.3 percent.
|
Projected Base Pay Increases by Employee Group |
|
|
2009 Salary Increases
|
Projected 2010 Increases
(projected November 2009) |
|
|
% firms freezing salaries |
(excluding 0s*) |
(including 0s) |
% firms freezing salaries |
(excluding
0s*) |
(including 0s) |
|
All
Employees |
30% |
3.2% |
2.1% |
14% |
2.7% |
2.3% |
|
Executives |
39% |
3.5% |
1.9% |
19% |
2.8% |
2.2% |
|
Management |
31% |
3.2% |
2.1% |
14% |
2.7% |
2.3% |
|
Professional
(sales and non-sales) |
28% |
3.2% |
2.2% |
12% |
2.7% |
2.4% |
|
Office/
Clerical/
Technician |
25% |
3,1% |
2.2% |
12% |
2.6% |
2.4% |
|
Trades/
Production/
Service |
24% |
3.0% |
2.2% |
10% |
2.7% |
2.4% |
|
Source: Mercer, 2009/2010 US Compensation Planning Survey.
*These figures do not include the 0% salary increases planned by some employers. |
Mercer’s most recent survey on pay trends was conducted in November 2009 and includes responses from more than 350 mid-size and large employers across the U.S. It provides an update to Mercer's 2009/2010 US Compensation Planning Survey from earlier in 2009.
“While planned 2010 base increases have dropped a bit from employers’ projections in April and are less than 2009 increases, this is still positive news given the fewer firm-wide pay freezes and staff reductions planned now compared to this time last year,” says Loree Griffith, a principal with Mercer’s rewards consulting business.
As companies prepare for an economic recovery, she notes, they are focusing on retaining employees and engaging top talent.
“Employers are still juggling selective hiring with selective cuts in staff as they evaluate specific workforce needs,” Griffith says. “Recognition programs, career development, training opportunities and creative communication campaigns—efforts that help keep employees engaged and motivated—along with incentive pay strategies will give companies a competitive edge as business begins to improve.”
Consistent with base pay increases, Mercer’s survey shows that short-term incentive payouts are projected to decrease slightly in 2010. On the whole, average payouts as a percentage of base pay for all employee groups are reasonably stable.
|
2010 Short-term Incentive Payouts by Employee Group |
|
|
2009 Estimated |
2010 Projected |
|
All Employees |
41% |
38% |
|
Executives |
19% |
18% |
|
Management |
11% |
10% |
|
Professional (sales and non-sales) |
5% |
5% |
|
Office/Clerical/Technician |
5% |
4% |
|
Trades/Production/Service |
19% |
19% |
|
Source: Mercer, 2009/2010 US Compensation Planning Survey Update. |
Furthermore, differentiation of short-term incentive awards continues to vary by performance levels with the highest-performing employees projected to receive average payouts (as a percentage of base pay) of two to four times more than the lowest performers.
Variation by Industry
Despite projected 2010 salary increases that are lower than what has been experienced in recent years, industry variations are evident. While 20 percent of durable goods manufacturers and 18 percent of services firms are expected to maintain pay freezes in 2010, less than 5 percent of consumer goods and insurance firms are expected to have freezes.
Compared to the expected average pay increase of 2.7 percent in 2010, employers within the consumer goods and high-tech industries have the highest projected pay increase at 3.0 percent. In contrast, other industries expect to award less than average pay increases in 2010. Education is among these sectors with a projected base pay increase of 2.2 percent along with health and medical insurance projected at 2.4 percent.
|
2010 Projected Base Pay Increases by Select Industry |
|
Industry |
2009 Actual |
2010 Projected Freezes
(% of Firms) |
2010 Projected |
|
Consumer Goods |
3.2% |
0% |
3.0% |
|
High-Tech |
3.1% |
13% |
3.0% |
|
Durable Goods |
3.2% |
20% |
2.8% |
|
Energy |
3.4% |
15% |
2.8% |
|
Retail/Wholesale Trade |
2.8% |
11% |
2.7% |
|
Insurance (all types) |
3.1% |
4% |
2.6% |
|
Services |
3.3% |
18% |
2.6% |
|
Banking/Finance |
3.2% |
9% |
2.6% |
|
Insurance – Health and Medical |
3.1% |
6% |
2.4% |
|
Education |
3.2% |
30% |
2.2% |
|
Source: Mercer, 2009/2010 US Compensation Planning Survey Update. |
“The marketplace for top talent remains competitive,” says Griffith. “Despite budgetary constraints, growth sectors are boosting salaries for select employees, and overall in some cases, in an effort to attract and engage talent necessary to continue at existing performance levels.”
|
Offensive vs. Defensive Comp Strategies for 2010
Many U.S. companies have focused their compensation strategies to cope with the recession and not necessarily to prepare for the coming recovery, according to a survey by Deloitte, a business consultancy.
The December 2009 survey report, Under Pressure: Compensation and Retention During a Turbulent Economy, indicates that across the board pay and incentives were down with deeper cuts in 2009 than in 2008. Key findings from the survey include:
Base Salaries
• At least 85 percent of surveyed companies were not providing standard merit increases on base salaries in 2009.
• Executives fared somewhat worse than employees, with two out of three (66 percent) seeing no increase in base salary or a salary reduction (compared to 54 percent for employees).
• Looking ahead to 2010, 30 percent of executives anticipated standard base salary increases of 3 to 5 percent for employees; 28 percent expected similar raises for executives.
• A majority of respondents (54 percent) planned to make smaller than normal salary increases for employees in 2010 while 44 percent indicate executives can expect a smaller salary bump.
Annual Incentive Plans
• Consistent with the tight rein on base pay increases, more than six out of 10 executives (64 percent) reported their companies planned to award bonuses below target at year-end 2009.
• Fully 20 percent reported they planned to forego bonuses altogether—double the number of companies that cut out bonuses at year-end 2008. Nevertheless, 36 percent projected annual bonuses at or above target—a strong minority but still a decline from 41 percent in 2008.
• More than half (52 percent) of executives reported bonuses in 2009 will be smaller than in 2008, compared to just 20 percent who believed they will be higher.
Retirement Benefits
• Nearly one in three executives surveyed (29 percent) stated their 401(k) matches had been decreased (9 percent) or suspended (20 percent) in 2009. |
Stephen Miller is an online editor/manager for SHRM.
Related Articles:
Compensation Trends Improving, but Employees Won't Make Up Lost Ground Just Yet, SHRM Online Compensation Discipline, December 2009
Handling Bonus Season: Frustrated Employees, Nervous Managers, SHRM Online Compensation Discipline, December 2009
A Strategic Approach to Recognition, SHRM Online Diversity Discipline, December 2009
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