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Employers still cautious with their salary budgets, and tougher with performance ratings
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Also see: Base Salary Rise of 3% Forecast for 2015 and Salary Budget Increases Show Broad Consistency
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:
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.
Adjusted for local cost of living.
Adjusted for both local cost of labor and local cost of living.
Do not offer adjustments
Source: Buck Consultants (figures are rounded).
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
Combination companywide incentive with individual performance component.
Business unit incentive.
Work group/team incentive
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.
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.
Annual pay increase budget percentage.
Possible pay increases for particular levels of performance or steps within a pay structure.
Bonus opportunities associated with a job.
Method/formula used to determine bonus awards.
Periodic updates on organizational performance and the potential impact on pay.
Method used to determine job and pay levels.
Pay range or band for a job.
Full pay structure for jobs within the same class or group.
value of total rewards—pay and benefits.
Source: Buck Consultants (percentages are rounded).
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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