Average Salary Budget Increases Up, But Performance Factoring into Pay Increases
July 21, 2010 — U.S. employers are reporting a 2.5% average salary budget increase across all employee categories for 2010, which means many employees may expect a base pay raise of about 2.5% before the year is over. But, the size of the raise changes when the employee's performance is factored in.
Low performers can expect to see minimal increases of up to 0.7% or nothing at all, middle performers might expect a nominal base pay raise of 2.4%, and high performers may expect an average of 3.7% (54% higher than a middle performer). Surveyed employers reported that about 24% of employees are rated as high performers, while most are classified as middle performers.
"With underfunded salary budgets this year, employers want the most bang for their buck," said Anne C. Ruddy, CCP, president of WorldatWork. "They are no longer averse to withholding merit increases for poor performers so they can afford to grant meaningful increases to better performers."
The survey also found that one in three companies has a separate promotional budget as standard practice. A promotion could mean an additional 7% to 8% increase for the promoted employee's base salary. In addition, a top performer can expect to benefit from an employer's variable pay program. "In this economy, being an average performer just doesn't cut it anymore," said Alison Avalos, research manager for WorldatWork. "Companies expect performance and are willing to reward employees based on organization success, individual performance or both. Pay for performance is alive and well."
For 2010, employers are budgeting an average of 5% to 12% for variable pay depending on employee category (e.g., exempt, nonexempt salaried and hourly, officers/executives).
Metro area is another variable influencing the size of salary increases for top performers. While surveyed employers reported an average pay increase of 3.7% for exceptional performers, employers in the following metro areas reported above-average base-pay increases for to performers:
Average raise for top performers*
San Jose, Calif.
*Based on average pay increases for top performers, percentage of companies awarding raises (not shown) and percentage of employees classified as high performers (not shown).
WorldatWork collected survey data in April 2010. Survey respondents are WorldatWork members employed in the HR, compensation and benefits departments of mostly large U.S. companies. A total of 2,497 respondents participated. The full report will be available in early August.