'Star' Performers Earn 75% Larger Raises than Average Workers

Overall, most U.S. companies plan moderate pay raises for 2014

By Stephen Miller, CEBS September 23, 2013

A mixed bag of news regarding pay raises awaits U.S. workers. Most employers plan to give workers a raise in 2014, but the increases will be only slightly larger than those in the past couple of years. Also, it pays to be a “star” performer, as workers in that category receive raises that are more than 75 percent greater than those for average performers, according to the Towers Watson Data Services Salary Budget Survey, fielded in June and July of 2013 among U.S. companies representing a cross section of industries.

In 2014 companies are planning pay increases that will average 2.9 percent for their salaried nonmanagement employees. That is slightly larger than the 2.8 percent average raise workers received this year and in 2012. Organizations also intend to give similar raises to executives and nonexempt employees, the survey revealed.

Only 4 percent of respondents do not expect to provide salary increases next year—the same percentage of companies that did not give raises this year, but far less than the 75 percent that froze salaries during the economic crisis in 2008.

“With the job market remaining relatively soft, most companies aren’t feeling pressure to raise salaries by much more than the rate of inflation,” said Laura Sejen, global practice leader for rewards at Towers Watson. “And the rising cost of health care doesn’t leave companies with much in their total rewards budget for pay raises. Still, pay remains one of the most important factors when an employee considers joining or remaining with a company; so employers need to be cognizant that they potentially risk losing employees if their compensation programs aren’t in sync with competitive market practice.”

Big Raises for Shining Stars

According to the survey, exempt workers who received the highest performance ratings were granted an average salary increase of 4.6 percent in 2013, more than 75 percent above the 2.6 percent pay bump given to those who received an average rating. Workers with below-average performance ratings received an average merit increase of 1.3 percent.

“Some employers continue to struggle with how to distinguish appropriate compensation for top-, average- and poor-performing employees,” noted Sejen. About one-fourth of companies expect to award annual incentive payouts—even to employees who fail to meet performance expectations.

“Retaining top performers and critical-skill employees is a significant challenge for most U.S. employers, even with the ongoing overall softness in labor markets,” said Laurie Bienstock, North America rewards leader at Towers Watson. “As a result, companies are resorting to a variety of reward strategies to make sure these employees don’t seek employment elsewhere when the job market heats up. This includes rewarding their best-performing workers with bigger pay raises, large incentive payments, and also one-time discretionary and spot bonuses.”

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



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