Employers Plan Lean Pay Increases, Engaging Top Performers


By Stephen Miller October 24, 2011

Given the uncertain economic outlook and the stubborn unemployment rate, American workers can expect pay raises averaging only 2.8 percent in 2012 vs. 2.7 percent in 2011 and 2.9 percent in 2010, according to a survey by Buck Consultants, Compensation Planning for 2012. The firm's 2012 base pay forecast is in line with other recent projections (see box at the end of this article).

Average executive promotion increases are expected to range from 5.7 percent (for C-suite employees) to 7.3 percent (for the vice-president level), the consultancy found.

Despite high unemployment, individuals with specific skill sets and expertise are still likely to be recruited for positions, and the regulatory environment has increased the need for skills in the information technology, accounting and health care fields, according to the firm's analysis.

“Most employers plan to hold the line similar to 2011,” said Stephen Mork, a Buck Consultants principal. “Given the slow economic recovery and stubborn unemployment rate, organizations are taking a cautious and conservative approach to compensation planning to stay within their payroll budgets.”

Buck Consultants completed its survey in August 2011, with responses from employers across all sectors of the U.S. economy.

Short-Term Incentives

The most prevalent type of short-term incentive pay was a companywide plan with an individual performance component. These bonuses are relatively unchanged from the previous year.

A blend of stock options and full-value awards (time- and performance-based restricted stocks) remains the most prevalent long-term incentive approach for C-suite employees. Broad-based employee groups are most likely to participate in time-based restricted stock plans.

Paying for Performance and Retaining Talent

Organizations’ top talent-related priorities for 2012 are retention of talent (62 percent) and employee engagement (56 percent), the survey revealed. Moreover, pay for performance remains as crucial as ever, given the importance of allocating budgets effectively to retain top performers: 80 percent of organizations had a pay-for-performance philosophy.

Popular actions for retaining top performers included:

New career development opportunities (64 percent).

Market pay adjustments(43 percent).

Larger-than-average base pay increases(30 percent).

Increased noncash recognition (28 percent).

Larger bonus opportunities than before (21 percent).

Other Findings

Among additional survey highlights:

Pay increase budgetsare communicated to managers and employees by 73 percent of organizations.

Referral bonusesare offered by 56 percent of organizations. More than three-quarters (77 percent) of employers who provide these bonuses cite a better chance of getting a strong performer.

A hiring or retention bonusis offered to employees with specialized industry or product knowledge by 52 percent of organizations.

Other 2012 Salary Forecasts

Salaries for American workers will increase by a median of just 2.8 percent in 2012, up slightly from 2.6 percent in 2011 and 2010, according to research by Towers Watson Data Services (see "For 2012, Modest Salary Increases with Regional Variations" and "Moderated Pay Raises Foreseen, with Fully Funded Annual Bonuses").

A 2.9 percent base salary increase was projected for 2012 by Aon Hewitt for salaried exempt, executives, salaried nonexempt and nonunion hourly workers, up slightly from 2011 for all groups (see "Salary Increases Stay Consistent, Focus on Variable Pay").

A Mercer survey indicated that 97 percent of U.S. organizations were planning to award base pay increases in 2012, with an expected average increase of 3.0 percent, up slightly from 2.9 percent in 2011 and 2.7 percent in 2010 (see "2012 Compensation Budgets Remain Lean, with Focus on Top Performers").

Hay Group reported that U.S. employees could expect median pay increases of 3.0 percent in 2012, consistent with salary increases the firm found for 2011 but below the 4.0 percent increases seen from 2005 to 2008 (see "Forecasted 2012 U.S. Base Salary Increases Remain Steady").

WorldatWork projected that salary budgets will rise by 2.9 percent in 2012 and that, based on individual performance ratings at year-end 2011, high performers can expect an average pay increase of 4.0 percent, middle performers a pay increase of 2.7 percent, and low performers an increase of 0.7 percent (See "More Employees to Get Raises as Pay Freeze Thaws" and "Salary Budgets Lag Behind U.S. Rate of Inflation").

Base salary increases in the U.S. are projected to rise from 2.92 percent in 2011 to 3.01 percent in 2012, with most companies budgeting 3.0 percent, according to pay consultancy Culpepper and Associates, Inc. (see "Global Rise in Salary Increase Budgets Projected in 2012").

Average 2012 raises for U.S. white collar professionals were pegged at 3.4 percent by recruitment firm Robert Half International (see the SHRM Online article "Forecast: Tech Positions to See Highest 2012 Pay Gains").


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