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U.S. salary budgets projected to rise 3.1% in 2014

Budgets for pay raises at U.S. employers have picked up from all-time lows, going from an average (mean) of 2.2 percent in 2009 to 2.9 percent in 2013, according to the 40th annual WorldatWork 2013-2014 Salary Budget Survey. U.S. salary budgets have averaged 2.8 percent for the past two years.

But pay budgets are showing signs of improvement. Forecasts indicate the average raise in base pay for 2014 in the U.S. will be 3.1 percent, which, if achieved, would be the first average increase above 3 percent since 2008.

“Salary budgets continue to improve, albeit slowly,” said Kerry Chou, CCP, senior compensation practice leader at WorldatWork, in a video posted on the organization's website. The data “adds to the recently released jobs numbers painting an economic picture that shows the U.S. economy is not gaining much momentum,” he commented. However, this year’s increases “compare quite favorable” to the 1.1 percent rise in the consumer price index (CPI), Chou added. “The good news for employees is that the purchasing power of their increases is going farther than in past years.”

Survey data were collected in April 2013 from WorldatWork members employed in the HR, compensation and benefits departments of mostly large U.S. companies. Key findings are noted below.

 Major Metropolitan Area Data 

Companies located in or reporting data for employees in Houston, Los Angeles and San Francisco reported the highest actual salary budget increases in 2013, averaging 3.1 percent. Employers in Baltimore, Cincinnati, Detroit and Phoenix reported the lowest overall, at 2.8 percent. “It’s encouraging that the difference between the lowest and highest [metro areas’ salary budget increases] is not very great,” Chou noted. 

Most metropolitan areas reported average salary budget increases ranging from 2.8 percent to 3.1 percent for 2013, up slightly from 2.7 percent to 2.9 percent in 2012.

Industry Data 

Budgets for pay raises for public administration workers hit an all-time low of 1.3 percent in 2010 and 2011 but have risen to 2.3 percent this year. The mining, quarrying, and oil and gas extraction industries are far above national figures in 2013, with average increases of 4.1 percent.

Number of Months Between Increases

In 2009, during the recession, many employers froze pay. In 2013 the average time between raises held steady at 12 months, “which is what we would expect in a normal economy,” Chou said. “Just two or three years ago we were seeing [the period between increases] as high as 18 to 24 months; so we’ve seen significant improvement.”

 Rewarding Talent

With tepid salary budgets, “organizations continue to be challenged in finding meaningful ways beyond 3 percent raises to reward talent,” Chou observed. Survey respondents from U.S. companies are focusing on:

Variable pay. Depending on employee category, 81 percent to 91 percent of eligible U.S. workers received variable pay (annual bonuses for goal achievement) in 2012. For officers/executives, 94 percent were eligible for variable pay in 2012, though only 91 percent received it in 2013.

Other bonuses. Organizations are using other forms of cash and noncash forms of compensation, including sign-on/hiring bonuses, spot bonuses, retention bonuses and project-completion bonuses.

More frequent adjustments. “Off cycle” adjustments to base salaries outside of the normal periodic (merit) increase period have increased substantially, occurring at 72 percent of organizations in 2013, compared with just 35 percent in 2010.

Increased differentiation based on performance. In 2013, high performers can expect an average pay boost of 4.1 percent, while middle performers will get a mere 2.7 percent increase (a 152 percent difference). “We see this trend continuing,” said Chou, adding he would like to see the percent difference go even higher in the future.

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

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