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Pay raises not expected to keep pace with inflation
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U.S. employees can expect median pay increases of 3 percent in 2012, according to research by Hay Group, a pay consultancy. While these increases are consistent with forecasted base salary increases for 2011 that were reported in June 2010, they are well below the 4 percent increases seen from 2005 to 2008.
After factoring in annualized consumer price index growth at 3.6 percent, the resulting pay movement for 2012 is a net loss of 0.6 percentage points.
According to Hay Group’s research, 3 percent pay increases are being reported for executives, middle management, supervisory and clerical positions. And this picture is relatively consistent across most industry sectors.
“Even though the economy is recovering, the stagnant growth in pay increases indicates employees’ pockets will likely be permanently affected by the Great Recession,” said Jeff Blair, Hay Group’s U.S. reward information services leader. “Many organizations froze salaries or limited pay increases during the downturn, and as a result, employees who are relatively new to the workforce will see their long-term earning potential significantly impacted.”
“The current economic environment is causing organizations to balance the cost of reward programs and relatively low base salary increases with the need to attract, retain and engage the talent they need to run their businesses,” said Tom McMullen, Hay Group’s North American reward practice leader. “Differentiating rewards—ensuring that top performers receive compensation that is substantially greater than average performers—is a continued focus area for organizations.”
“In addition to ensuring that compensation amounts are differentiated, the best performing organizations emphasize and take care in managing the pallet of ‘total rewards’ for their employees, including clear career development opportunities, meaningful job designs, nonfinancial recognition and energizing work climates,” added McMullen. (To read more from McMullen and others about effective incentive pay designs, see the SHRM Online article "Pay for Performance: Make It More than a Catch-Phrase".)
Hay Group’s forecast results are based on data provided by U.S. organizations from March through June 2011. Typical respondents include compensation professionals in the HR departments of small to large size U.S. organizations across a range of industries.
According to a forecast released in July 2011 by WorldatWork, salary budgets are projected to rise by 2.9 percent in 2012. Based on individual performance ratings at year-end 2011, low performers can expect an average pay increase of 0.7 percent, middle performers 2.7 percent and high performers 4.0 percent (see "More Employees to Get Raises as Pay Freeze Thaws").
However, many employees appear less confident they'll receive a raise at all, according to the Glassdoor Employment Confidence survey, although men remain more optimistic than women (see "U.S. Employees Confidence in Pay Raises Falls").
Stephen Miller, CEBS, is an online editor/manager for SHRM.
More Employees to Get Raises as Pay Freeze Thaws, SHRM Online Compensation Discipline, July 2011
U.S. Employees' Confidence About Pay Raises Falls, SHRM Online Compensation Discipline, July 2011
Moderate Economic Growth, Slow Job Market, Say CFOs, SHRM Online Compensation Discipline, June 2011
Pay for Performance: Make It More than a Catch-Phrase, SHRM Online Compensation Discipline, May 2011
SHRM Online Compensation Discipline
SHRM Salary Survey Directory
SHRM Compensation Data Center
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