Salaries on the Uptick

Salaries on the Uptick
Although salary increases are at some of their lowest points in recent memory, several studies predict a significant upturn for next year. But, with money still tight, top performers are more likely to see increases than other employees. By Jared Shelly
It's no secret that companies have cut back on salaries in the face of the economic downturn. Whether it was salary freezes or more serious measures such as furloughs or pay cuts, the changes mean that workers just couldn't bank on their salaries the way they did in more certain times.
But the times may be a changin'.
Studies by several consultancies reported extraordinarily low salary increases for 2009. Both Watson Wyatt Worldwide Inc. in Washington and Hay Group in Philadelphia, in separate reports, found the average salary increase in 2009 to be 2 percent.
Another study by WorldatWork reported a 2.2 percent increase in salary budgets, the smallest in the survey's 36-year history.
Alison Avalos, research manager at WorldatWork's headquarters in Scottsdale, Ariz., says that, in a typical year, only 1 percent or 2 percent of companies will not budget for raises, but in 2009, that number ranged from between 33 percent to 43 percent, depending on the job type. (Less money was budgeted for higher-ranking positions, she says.)
Workers -- and HR professionals -- may be happy to know that those same groups predict that salaries will rise significantly next year.
Watson Wyatt and the Hay Group both forecast merit increases of 3 percent for 2010 -- an increase of one-third -- while WorldatWork sees salary budgets hiking 2.8 percent.
"The good news is that [minimal salary increases aren't] going to go on forever," says Laurie Sejen, practice director of strategic rewards at Watson Wyatt, which has since merged with Towers Perrin and will become Towers Watson once the merger is complete. "There is an end in sight to the pain, at least we hope."
In the Watson Wyatt study, 17 percent of companies that eliminated salary freezes in 2009 expect to lift that action in the next six months, while more than half (52 percent) expect to take such action in the next 12 months.
In addition, one-third (30 percent) of companies that reduced salaries expect to restore that compensation in six months, while one-quarter (25 percent) expect it to occur in the next 12 months.
Even with the increases in salary budgets, there still isn't a lot of money to go around, which means most will go to top performers -- which is something HR should communicate to employees, says Sejen.
"What [HR and management is] going to try to do is use [as much of the salary budget] as possible to try to reward top-performing employees so they get a better increase ... ," she says. "They might take that money away from employees who didn't meet or perhaps partially met expectations."
Avalos believes that, as the economy recovers, pay freezes will be one of the first cost-cutting measures to be eliminated -- before other strategies such as hiring freezes or furloughs.
"Successful organizations understand the importance of rewarding through pay. In order to stay competitive in the competition for talent, they need to keep up with the market ... ," she says.
"They'll start to set money aside again for those pay increases and, as that happens, organizations that haven't done that yet are going to have more pressure to do that because if they don't, they're now at risk of losing talent to competing organizations that are actually hiring again and offering pay increases," Avalos says.
It's important -- especially in this economy -- that HR helps senior leaders motivate performers so they work hard and keep up production rates, says Avalos. And nothing motivates like money.
"[Motivation] is certainly key right now to success and survival in a lot of companies because if the employees don't do what's asked of them, then you've got more problems on your hands," she says, such as slower production rates or poor sales.
August 11, 2009
Copyright 2009© LRP Publications