New research from Aon Hewitt suggests that salary increases in the U.S. could reach rates at their highest levels in six years. However, average increases should remain modest as many employers reserve much of their compensation budget for high-performing workers, performance awards, and salary increases based on merit. The all-time low for year-over-year increases occurred in 2009 when the rate sank to 1.8 percent while the new high could see a 3 percent base pay rise.
“While it appears that pay levels are slowly rebounding, we’re still far below pre-recessionary levels of compensation spending as companies continue to hold the line on fixed costs,” said Ken Abosch, compensation, strategy and market development leader at Aon Hewitt. “Salaries represent the largest portion of employer costs today. With a sizable talent pool available and increasing global competition for goods and services, companies aren’t feeling tremendous pressures to increase base pay to attract top talent. Instead, they are executing on a pay-for-performance vision that rewards employees based on a mix of business and individual results.”
The survey found that employers are most interested in reserving most of their salary-increase budgets for high-performing workers who already saw an average salary increase of 4.7 percent in 2013. Low-performing employees (those not meeting expectations) saw increases of 0.2 to 0.9 percent. Many employers are also increasingly turning to variable pay programs to reward top performers.
“We’ve seen a dramatic shift in the mix of compensation over the past decade, with variable pay assuming the largest component of compensation growth,” added Abosch. “Performance-based awards are attractive to employers because they tie employee compensation to business results and help give them more control over their costs. There is also a tremendous upside for employees—particularly those who are high-performing workers — because they have the opportunity to be rewarded for exceeding their goals. Regardless of economic conditions, variable pay programs will continue to be the primary way employers differentiate rewards in the future.”