2008 U.S. Pay Hikes Projected to Level Out

September 26, 2007 (PLANSPONSOR.COM) - Preliminary figures from a new study show U.S. and European workers' salary hikes lagging those of their counterparts in Asia-Pacific and Latin America.

A news release said the study by Watson Wyatt and WorldatWork, an HR trade group, of 946 companies found employees in quickly developing regions will receive a higher percentage merit pay hike in 2008 than they did in 2007. Workers elsewhere around the world – including the U.S. – are expected to see their 2008 compensation increase levels stay static in 2008 compared to this year.

Merit-based pay is expected to increase 5% in Asia-Pacific, 4.5% in Latin America, 3.6% in the United States, and 3% in Europe next year, for a global median of 4%, according to the study..

“With such a competitive global market for talent, it’s hard to foresee downward pressure on pay levels coming anytime soon,” said Laura Sejen, Watson Wyatt global director of Strategic Rewards, in the news release. “The challenge to attract and retain skilled workers remains especially acute in Asia-Pacific and Latin America, where rapid economic growth, high turnover and the expectation of frequent promotion keep pushing up compensation.”

Reflecting tight labor markets, employers are also setting aside separate money for market adjustments. Employers in Asia-Pacific are budgeting the most for market adjustments at 3%, while employers in Latin America are setting aside 2%. In Europe, market adjustment budgets of 2% are anticipated, and in the United States, budgets will remain at a projected 0.7% in 2008, according to the study.

However, throughout the world, companies are focusing more on rewarding high performers with bonuses than on increasing base pay through merit increases or market adjustments. Employers around the world are increasing the number of workers eligible for variable incentives, but at the same time, goals are getting harder to reach. More than half (51%) of companies anticipate raising their financial targets in the coming year.

Twenty-four percent of employers in Asia-Pacific, 18% in Latin America, and 17% in Europe report increasing eligibility for employees for short-term incentives. In the United States, 10% report increasing eligibility, according to the study.

The full report will be published in October.