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2011 Base Salary Increases See Modest Rise 
 

1/5/2011  By Stephen Miller 
 
 

U.S. employees can expect median base salary increases of 2.8 percent in 2011, according to Hay Group's Salary Budgets Survey results.

The pay consultancy's survey was conducted in November 2010 and includes data from 468 U.S. organizations. Typical respondents included compensation professionals in the HR departments of U.S. organizations of all sizes across a wide range of industries. Key findings include:

U.S. employees can expect median base salary increases of 2.8 percent in 2011 vs. 2.4 percent in 2010.

Planned base pay increases in 2011 are consistent for management/professional and support positions (at 2.8 percent). Executives and skilled trade jobs come in slightly lower at 2.7 percent.

Top performers are receiving only slightly higher increases of 3.1 percent vs. the 2.8 percent increase reported for all employees.

Hay Group's findings are in line with other 2011 salary increase estimates (see the SHRM Online article "2011 Compensation Budgets Stabilizing").

“Relatively speaking, a forecasted median 2011 base salary increase of 2.8 percent is good news for employees who over the past two years saw the lowest salary increases in decades,” said Tom McMullen, Hay Group’s North American reward practice leader. The results “point to a positive trend in organizational staffing. We found that the number of organizations increasing their staffing levels is double that of organizations that are decreasing their staffing levels.”

In addition, the survey indicated that many of the cuts organizations made to labor costs because of the recession have already happened. The percentage of organizations using or considering significant labor cost reduction items was considerably lower than data reported 18 to 24 months earlier.

Percentage of U.S. organizations using or considering the following labor cost reductions for 2011:

Pay freezes

18%

Reduced retirement benefits

17%

Other reduced benefits

15%

Decreasing staffing levels

10%

Job sharing

9%

Furloughs

7%

Reduced working hours

5%

Salary cuts

4%

Source: Hay Group.

Health Care Cost Shifting

One exception to this trend was the continued emphasis on increasing employee health care co-pays and scaling back on employer-paid coverage. Nearly 50 percent of organizations reported recent increases in employee co-pays (or reduced employer-paid coverage) or that they were considering doing this in the near future.

More Variable Pay

“Despite the optimism in our latest data, the contraction in the U.S. economy will not be reversed overnight, and neither will the return to the 3.5 percent to 4.5 percent base salary increases employees were used to receiving for much of the last decade,” added McMullen. “Along with modest base salary increases, we will likely see a continued emphasis on variable pay programs, both incentives and bonuses, as organizations emerge from the recession. Organizations are willing to pay for results, but only if they get those results.”

----------------------------------------------------
The economic contraction won't be  reversed
overnight,  and neither will we see a return
to the  3.5% to 4.5% base salary increases
employees received during the last decade.
-- Hay Group
----------------------------------------------------

Differentiation Among High/Low Performers

An area of concern revealed in the data was a lack of differentiation in base salary increases between top performers and average performers. Top performers were reported to receive a median 3.1 percent increase vs. the 2.8 percent increase reported for the typical employee.

“Organizations have a difficult time differentiating pay increases when the pot of money gets smaller,” said McMullen. “Couple this with the ineffectiveness of many line managers in assessing employee performance, and undifferentiated pay is the outcome. Managers have an opportunity to use their suite of ‘total rewards’ programs—all of the financial and non-financial rewards that the organization provides—to reinforce the link back to individual and team performance.”

Similarly, a recent Sibson Consulting study concluded that effective performance pay program design and a good company culture are needed to support a strong pay-for-performance environment. Organizations with ineffective pay-for-performance programs tend to blame limited compensation budgets as the cause, but that's often an excuse by managers who want to avoid confronting mediocre performers with low salary increases.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

2011 Compensation Budgets Stabilizing, SHRM Online Compensation Discipline, December 2010

Keys to Effective Pay for Performance, SHRM Online Compensation Discipline, December 2010

No Spike in Hiring, but Payrolls Seem More Stable, SHRM Online Staffing Management Discipline, December 2010

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

SHRM Metro Economic Outlook reports

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