August 14, 2012

2012 Sees Marginal Rise in Salaries, Increased Focus on Performance Compensation

financialAon Hewitt’s newest survey has revealed that salaries in the U.S. continue to make small gains as doubts about the stability of the global economy remain fresh. However, data from the survey also show that employees can help to offset only marginally increasing salaries with performance-based awards. Salary increases reached an all-time low in 2009 with a rate of increase at 1.8 percent. Since then, base pay increases have risen to an average of 2.8 percent in 2012. Pay increases are expected to be similarly slight next year.

“It is unlikely that salary increases will reach pre-recession levels of 4 percent or higher any time soon,” said Ken Abosch, compensation marketing, strategy and development leader at Aon Hewitt. “Companies are more impacted by the global economy than ever before, as a result organizations continue to be conservative with their spending, but we anticipate that attitude will remain even after the economy rights itself—holding down spending on base pay is the new normal.”

While salary increases remain low, employers continue to offer annual performance-based awards that must be re-earned each period. The awards are used primarily to drive performance, increase employee engagement, and minimize fixed costs. In fact, 90 percent of companies have offered at least one performance-based pay program in 2012. And spending on such compensation programs continues to rise steadily as companies jumped 0.4 percentage points to 12 percent in 2012. The biggest jump in variable pay in 2012 was for nonunion hourly workers where employers spent 6 percent in 2012, compared to 5.2 percent in 2011.

“Organizations are being more strategic with the limited compensation dollars they have to spend,” explained Abosch. “They are spending less on base pay increases for all workers, and instead, are rewarding high performing workers with larger performance-based awards. This allows them to better control spending, while still providing incentives for their best employees.”

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Joshua Bjerke, from Savannah, Georgia, focuses on articles involving the labor force, economy, and HR topics including new technology and workplace news. Joshua has a B.A. in Political Science with a Minor in International Studies and is currently pursuing his M.A. in International Security.