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More Employers Granting Pay Raises in 2010, Study Finds

Dec. 23, 2009 — More organizations are planning to grant pay increases in 2010 as the economy begins to show signs of improvement, according to a new survey.

Mercer’s 2009/2010 US Compensation Planning Survey Update reports that the number of organizations freezing salaries has declined compared to last year. While challenging economic conditions drove 30% of employers to freeze salaries across the board in 2009, just 14% are planning across-the-board freezes in 2010.

Of those employers granting base pay increases, the average increase is expected to be 2.7% in 2010, down from an actual 3.2% in 2009, and slightly less optimistic than the increases planned earlier this year for 2010. Including salary freezes, average base pay increases for 2010 are projected to be 2.3%, according to survey results. 

“While planned 2010 base increases have dropped a bit from employers’ projections in April and are less than 2009 increases, this is still positive news given the fewer firm-wide pay freezes and staff reductions planned now compared to this time last year,” said Loree Griffith, a principal with Mercer’s rewards consulting business. As companies prepare for an economic recovery, they are focusing on retaining employees and engaging top talent, Griffith said.

“Employers are still juggling selective hiring with selective cuts in staff as they evaluate specific workforce needs,” Griffith said. “Recognition programs, career development, training opportunities and creative communication campaigns — efforts that help keep employees engaged and motivated — along with incentive pay strategies will give companies a competitive edge as business begins to improve.”
 
Consistent with base pay increases, the survey shows that short-term incentive payouts are projected to decrease slightly in 2010. On the whole, average payouts as a percentage of base pay for all employee groups are reasonably stable.

Furthermore, differentiation of short-term incentive awards continues to vary by performance levels with the highest-performing employees projected to receive average payouts (as a percentage of base pay) of two to four times more than the lowest-performers, the survey found.

Variation by industry
While 20% of durable goods manufacturers and 18% of services firms are expected to maintain pay freezes in 2010, less than 5% of consumer goods and insurance firms are expected to have freezes, according to survey results.

Compared to the expected average pay increase of 2.7% in 2010, employers within the consumer goods and high-tech industries have the highest projected pay increase at 3%. In contrast, other industries expect to award less than average pay increases in 2010. Education is among these sectors with a projected base pay increase of 2.2% along with health and medical insurance projected at 2.4%.
 
“The marketplace for top talent remains competitive,” Griffith said. “Despite budgetary constraints, growth sectors are boosting salaries for select employees, and overall in some cases, in an effort to attract and engage talent necessary to continue at existing performance levels.”

About the Survey 
Mercer’s most recent survey on pay trends, which was conducted in November and includes responses from more than 350 mid-size and large employers across the US, provides an update to its 2009/2010 US Compensation Planning Survey from earlier this year.

Figure 1: Projected Base Pay Increases By Employee Group

*These figures do not include the 0% salary increases planned by some employers.

Figure 2: 2010 Short-Term Incentive Payouts By Employee Group

Figure 3: 2010 Projected Base Pay Increases By Select Industry

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