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Pay Trends for 2014: Salary Increases Hold Steady
Employers still cautious with their salary budgets, and tougher with performance ratings

By Stephen Miller, CEBS  10/8/2013

Average base pay increases for 2014 will remain at 3 percent for the second year in a row in the U.S.—roughly one percentage point below pre-recession levels—according to the seventh annual Compensation Planning Survey by Buck Consultants. However, more employees are likely to receive less than 3 percent than receive more than 3 percent due to greater pay differentiation based on performance, a finding also noted recently by other experts.

“Employers continue to be cautious with their salary budgets,” said David Van De Voort, a Buck principal. “What’s more, performance ratings got tougher and average promotional pay increases stagnated.”

Buck's survey of U.S. employers, completed in August 2013, looks at pay increases in 2012 and 2013 and planned increases for 2014. Among the key findings:

  • Salary increases associated with being among the highest-rated employees on a five-point scale increased to 4.3 percent in 2013 from 4.1 percent in 2012.
  • Respondents provided larger base pay increases for employees with particular skills and for those in IT and medical professions, while fewer respondents provided larger increases to workers in sales and engineering than was the case in the prior year's survey.
  • As a result of the Affordable Care Act, 8 percent of respondents have capped work hours of part-time employees, with an additional 12 percent considering taking this action. Eight percent are providing incentives for employees to obtain benefits via another source, and an additional 9 percent are considering this approach.
  • Talent retention remains employers’ top HR priority, while employers project no increased hiring activity for 2014, with just 19 percent of respondents anticipating adding workers in 2014, the same as in 2013.

Geographic Adjustments

In 2013, 44 percent of respondents used geographically adjusted pay ranges, most often based on the local cost of labor. The most common practice is to adjust ranges both above and below national rates (67 percent) versus only above national rates (25 percent) or only below national rates (8 percent).

Geographically Adjusted Base Pay Ranges

 

Percent of Total

Adjusted for local cost of labor.

29%

Adjusted for local cost of living.

6%

Adjusted for both local cost of labor and local cost of living.

9%

Do not offer adjustments

56%

Source: Buck Consultants (figures are rounded).

Incentive Payouts

Both short-term incentives (STI) such as annual bonuses, and long-term incentives (LTI) such as time- or performance-based restricted stock grants, were weakened by the recession and tepid recovery. Fewer employees received STI in 2012, the last full year this data was collected. The expected size of STI awards forecasted for 2014 is smaller than 2012 actual awards.

Prevalence of Short-Term Incentives

 

Percent of Total

Combination companywide incentive with individual performance component.

54%

Companywide incentive.

49%

Individual incentive.

32%

Business unit incentive.

23%

Work group/team incentive

13%

Gainsharing

4%

Source: Buck Consultants (figures are rounded).

Similarly, the percentage of employees expected to receive new-hire LTI grants is down for most employees, while the percentage of employees expected to receive ongoing grants has decreased for lower-level employees and increased slightly for higher-level executives.

Pay Communication

The communication of pay practices has not changed substantively from previous years. The notable exception is the number of employees that share the pay range or band for a job with both managers and employees, which increased from 51 percent in 2012 to 58 percent in 2013.

Employers are still least likely to share the full pay structure for jobs within the same class or group (only 38 percent do so) and the possible pay increases associated with particular levels of performance or steps within a pay structure (26 percent).

How Pay Information Is Shared

With managers only

With managers and employees

Do not provide

Compensation philosophy and strategy.

23%

67%

10%

Annual pay increase budget percentage.

53%

36%

11%

Possible pay increases for particular levels of performance or steps within a pay structure.

48%

26%

26%

Bonus opportunities associated with a job.

18%

69%

13%

Method/formula used to determine bonus awards.

15%

69%

16%

Periodic updates on organizational performance and the potential impact on pay.

15%

60%

26%

Method used to determine job and pay levels.

37%

40%

23%

Pay range or band for a job.

30%

58%

12%

Full pay structure for jobs within the same class or group.

33%

29%

38%

Value of total rewards—pay and benefits.

4%

72%

24%

Source: Buck Consultants (percentages are rounded).

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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