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Salary Budget Increases Show Broad Consistency
But eight U.S. cities reported a decline in pay increase budgets in 2014

Stephen Miller, CEBS  8/7/2014

As SHRM Online recently reported, pay increase budgets at U.S. employers have improved slightly, rising to 3 percent in 2014 from 2.9 percent in 2013, according to WorldatWork’s 2014-2015 Salary Budget Survey. Forecasts show that the average raise in base pay for 2015 in the U.S. is projected to be 3.1 percent, WorldatWork found, while Hay Group and the Conference Board forecast a median 3.0 percent base pay increase next year. Mercer and Aon Hewitt also point to a 3.0 percent average increase in base pay.

In a subsequent analysis of survey findings, WorldatWork notes that organizations continue to converge on budget salary increase amounts between 2 to 4 percent, with 85 to 90 percent of all organizations landing there, depending on employee category. The percentage of organizations not awarding increases is down as well, at 2 to 5 percent, fairly close to historical levels.

Data was collected in April 2014 from WorldatWork members employed in the HR, compensation and benefits departments of mostly large U.S. companies.

Major Metropolitan Area Data

Surveyed organizations reported variance in salary budget increase averages among major U.S. metropolitan areas, although all medians were at 3 percent. While there were no extreme outliers, the following eight cities reported a decline from 2013 to 2014 from 0.3 to 1 percent in average total salary budget increases:

Detroit.

Miami.

Minneapolis.

Pittsburgh.

Portland, Ore.

San Diego.

St. Louis.

Tampa, Fla.

On the other hand, organizations in Houston, Los Angeles and San Francisco trended above the national average, budgeting salary increases of 3.1 percent for 2014, which represented no change from 2013.

 

Pay for Performance

Even though the size of all salary increase budgets, including merit budgets, remains on the conservative side, there is evidence of differentiation of awards.

“Organizations know that in order to retain top talent, they need to reward and motivate these important employees,” Alison Avalos, research manager for WorldatWork, told SHRM Online. “They are doing so by differentiating salary increases and increasing the use of bonus programs.”

Looking at employee performance in 2013, organizations averaged:

A 2.7 percent merit increase for midlevel performers and a 4 percent payout for top performers.

Low performers averaged a 0.6 percent increase in 2013, although the median payout was zero.

Pay increases for 2014 performance are expected to remain at 2.7 percent for middle performers, climbing to 4.1 percent for high performers.

Increased Use of Bonus Programs

The 2014 data show that 74 percent of respondents are using market-based pay increases. Similarly, use of sign-on/hiring bonuses, spot bonuses, retention bonuses and project completion bonuses rose over past years, suggesting that organizations are beginning to pay more attention to retention of employees as the economy continues to improve. This reiterates what employers reported earlier this year (see the SHRM Online article Sign-On, Retention and Spot Bonuses Show Upswing).

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Also see: 

Variable Pay Spending Spikes to Record High, SHRM Online Compensation, Sept. 2014

Pay Raises Spotlight Top Performers, SHRM Online Compensation, Aug. 2014

Base Salary Rise of 3% Forecast for 2015, SHRM Online Compensation, July. 2014

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