Unemployment Flattens Pay Raises; Top Performers Rewarded

By Stephen Miller, CEBS Aug 3, 2012

More hiring has yet to lead to more pay. While U.S. unemployment fell from 10 percent in October 2009 to 8.3 percent in August 2012, it has not been enough to boost salary budget increases and, subsequently, employee wages, according to WorldatWork, an association of total rewards professionals.

Pay increase budgets at U.S. employers have picked up slightly from all-time lows in 2009, going from an average (mean) of 2.2 percent to 2.8 percent in 2012, according to the 39th annual WorldatWork 2012-2013 Salary Budget Survey. But the movement does not appear to be coming from organizations awarding larger pay increases. Instead, it stems from fewer organizations reporting 0 percent increases, or frozen salary budgets. The number of 0 percent responses declined from 33 percent of employers in 2009 to just 5 percent in 2012.

“There is an inverse relationship between the spike in organizations budgeting 0 percent and the overall average salary budget increase,” Alison Avalos, a certified compensation professional and research manager for WorldatWork, told the press. “When pay budget freezes spiked in 2009, overall mean and median salary budget increases plummeted, pulled down by the zero values. The overall average salary budget seems to be holding steady at close to 3 percent, but the growth is not because employers are being aggressive with salary increase budgets. It is mostly because the number of 0 percent responses has declined in the three years since the recession.”

WorldatWork collected survey data in April 2012 from among its members, who are employed in the HR, compensation and benefits departments of mostly large U.S. companies. All data include 0 percent responses.

Major Metropolitan Compensation Data

Employers in Detroit reported the lowest overall average salary increase budget at 2.6 percent for 2012, while Houston-area employers reported the highest, topping 3 percent. Most metropolitan areas reported average salary budget increases ranging from 2.7 percent to 2.9 percent for 2012, and 2.9 percent to 3.1 percent for 2013.

Compensation Data by Industry

Pay increase budgets for public administration hit an all-time low of 1.3 percent in 2010 and 2011, but rose to 1.7 percent in 2012. Conversely, the mining industry was far above national figures, with average 2012 salary budget increases at 4 percent.

Variable or Incentive Pay

The percentage of organizations using variable pay grew to 82 percent in 2012, up from 79 percent in 2011. A combination of awards based on organization/unit success and individual performance continues to be the most prevalent type of variable pay program.

Rewarding Top Performers

WorldatWork’s findings were supported by Mercer, which found 95 percent of U.S. organizations were planning to award base salary increases in 2013.

Mercer’s 2012/2013 U.S. Compensation Planning Survey includes responses from more than 1,500 mid-size and large employers across the U.S. and reflects pay practices for more than 12 million workers. It shows that the average raise in base pay for workers in the U.S. is expected to be 2.9 percent in 2013, up slightly from 2.7 percent in 2012 and 2011, and 2.3 percent in 2010.

These expectations are in line with a recentforecast by Hay Group, a pay consultancy, showing an average 3 percent salary budget increase for 2013, the same as WorldatWork’s recent findings.

Mercer noted that companies plan bigger increases for top-performing employees—8 percent of the workforce—as they strive to balance compensation planning budgets with retention of critical talent.

The survey shows:

The highest-performing employees received average base pay increases of 4.4 percent in 2012.

This compares to 2.4 percent for average performers (54 percent of the workforce) and 0.1 percent for the weakest performers (2 percent of the workforce).

“As employers strive to balance the need to retain key talent with their financial budgets, they are segmenting their workforce and focusing on identifying and recognizing high-potential employees,” Catherine Hartmann, a principal with Mercer’s rewards consulting business, told the press.

“Differentiating salary increases based on performance is the norm and remains an effective way for employers to wisely spend their reward dollars on the most impactful employees,” added Mike Burniston, leader of Mercer's human capital consulting business for the U.S. and Canada. “Since many companies are still working with limited dollars, taking a holistic approach to total rewards using internal workforce analytics as well as external market data to set appropriate programs for each employee segment is the smart approach.”

Factors Influencing Pay Decisions

According to the survey, the top three factors influencing compensation decisions are:

• ​Retaining talent (reported by 74 percent of respondents).

Strengthening their performance-based culture and delivering pay for performance (66 percent).

Acquiring talent (57 percent).

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


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