Base Pay Set to Increase in 2013

Despite the slow -- and sometimes uncertain -- pace of recovery, salary-budget increases are expected to increase by approximately 3 percent in 2013, according to three new surveys.

Wednesday, August 8, 2012
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If you still have a job next year, there's a good chance you'll be getting a pay increase.

At least that's according to the results of three new surveys -- from Mercer, WorldatWork and the Hay Group -- all of which predict an average raise in base pay of between 2.9 percent to 3 percent in 2013.

(Mercer is predicting an average 2.9-percent raise for workers in 2013, while the Hay Group and WorldatWork each set the figure at 3 percent.)

"Employers continue to recognize that, in order to attract and retain top-performing employees, they're going to have to reward them in line with industry dynamics," says Catherine Hartmann, principal with New York-based Mercer's rewards consulting business. "For instance, oil and gas is a much more competitive market for critical talent than other industries."

Retaining key talent still remains a key challenge for organizations this year, according to Mercer's 2012/2013 U.S. Compensation Planning Survey, and, as a result, companies are still rewarding their top performers with greater-than-average increases, thereby widening the gap between these employees and those in the lower-performing categories.

Mercer's survey finds the highest-performing employees (8 percent of the workforce) received average base-pay increases of 4.4 percent in 2012, compared to 3.4 percent for the next highest level of workers (29 percent), 2.4 percent for average performers (54 percent), 1 percent for low-performing workers (7 percent) and 0.1 percent for the lowest performers (2 percent), according to the survey.

"Differentiating salary increases based on performance is the norm," says Mike Burniston, leader of Mercer's human capital consulting business for the U.S. and Canada regions. "[A]nd [it] remains an effective way for employers to wisely spend their reward dollars on the most impactful employees.

"Since many companies are still working with limited dollars," he says, "taking a holistic approach to total rewards using internal workforce analytics, as well as external market data, to set appropriate programs for each employee segment is the smart approach."

While the 2.9-percent projection may not bump many employees into a higher tax bracket, it does continue an upward trend in pay increases, beginning with 2.1 percent in 2009, 2.3 percent in 2010 and 2.7 percent in both 2011 and 2012, according to Mercer.

The WorldatWork survey, based on 4,299 responses from 13 countries and representing more than 17 million employees, finds the 3-percent U.S. projection for 2013 lags behind that of India, China and Brazil, at 10.7 percent, 8.8 percent and 7.2 percent, respectively.

Spain (2.9 percent) and Japan (2.7 percent) join the United States as the lowest projected salary increases in the WorldatWork survey.

"Salary increases in growth markets such as India, China and Brazil remain strong again this year," says Adam Gorensen, the organization's global practice leader. "Although more and more companies are implementing integrated total rewards programs to attract and retain employees, cash remains king among employees.

"The war for talent," he says, "particularly for senior leaders and employees with specialized skills, rages on. Organizations must continue to be competitive in cash compensation, even as they expand the range of other rewards in order to attract, motivate and retain their critical talent."

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Meanwhile, the Hay Group's 3-percent projected increase for 2013 is based on data provided by 350 U.S. organizations between March and June 2012.

The increase is 0.8-percent larger than the annualized consumer price index growth ? also known as inflation -- of 2.2 percent, which represents an improvement after employees saw an estimated 0.6-percent net loss last year.

But, Jeff Blair, the U.S. productized services leader at Philadelphia-based Hay Group, says the predicted pay raises pale in comparison to the 4-percent increases seen between 2005 and 2008, adding that, if such a meager trend continues, it could significantly impact employees' long-term earning potential.

"With the economy continuing to grow slowly," he says, "it is not surprising that salary increases have followed suit. Relatively low annual salary increase budgets are limiting the financial rewards available to employers.

"As a result," he says, "organizations are increasingly focused on improving employee engagement and creating a positive work environment for employees."

Organizations are indeed devoting more time and energy to better understanding what employees truly value in their reward package, says Tom McMullen, the Hay Group's reward practice leader for North America.

"Quite often," he says, "it is the lack of attention to some of the non-financial rewards [such as flexible-work options or an increase in vacation days] that drive good employees out of organizations, so this can go a long way toward improving employee engagement and retention."

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