Compensation in the form of salary is the biggest piece of the benefits pie and a pair of recent surveys suggests modest pay increases for 2013 should be considered the new normal.
According to Buck Consultants’ Compensation Planning Survey, the median salary increase in 2013 will be 3% as employers continue to be cautious with their salary budgets.
“I think this is a trend that will continue until we see fairly significant economic growth,” says David Van De Voort, a principal with Buck. “Employers aren’t going to spend any more on employee salaries than they absolutely have to.”
And while pay increase budgets at U.S. companies have picked up slightly from all-time lows in 2009, the upward movement isn’t coming from organizations awarding larger pay increases, according to WorldatWork’s 2012-2013 Salary Budget Survey. Instead, it stems from fewer organizations reporting 0% increases or frozen salary budgets. In 2009, 33% of companies reported frozen salary budgets while in 2012, 5% of companies reported frozen salary budgets. The average pay increase budget for 2012, according to the WorldatWork data, is 2.8%.
“One thing we hear more and more of is that budgets are only guidelines and that companies will set budgets, but really only spend the money based on the actual results they experience,” says Van De Voort. “Twenty years ago, the finance function expected the budget to be adhered to. But economic conditions have been so volatile that budgets are perceived as variable based on what actually happens.”
About two-thirds (67%) of the companies surveyed by Buck said they would focus on retaining top talent in 2013, 46% are planning for normal hiring and 19% expect to add staff.
“Where they do spend money is on a focused basis — on a rifle shot, rather than a shotgun basis,” says Van De Voort. “Rather than provide a raise for all employees, they’ll focus on top performers.”
Employees may be getting modest pay increases but are also being asked to contribute more to their health care benefits. This is a trend Van De Voort expects to continue. “Employers are looking to control contributions to their expense around benefits and will ask employees to bear more of that burden.”
Small employers, meanwhile, may be even more conservative in their salary budgets. “The companies that respond to these surveys tend to be larger companies so the practices of smaller companies are not represented,” says Van De Voort. “And we know anecdotally that small companies are even more conservative, or more variable, than larger companies. They don’t run with the pack as much.”
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