2011 Merit Hikes Averaging 3%

March 18, 2011 (PLANSPONSOR.com) – Merit compensation increases are expected to average around 3% for 2011, reflecting higher budgeted amounts across all employee groups, compared to the 2.7% granted in 2010, a new Towers Watson survey indicates.

According to the study, the largest change is seen for administrative support and hourly employee groups where merit increase budgets are increasing from 2.5% to 3%.  Average total increases for 2011 are also expected to be around 3%, unchanged from the actual total increases granted in 2010.

Towers Watson said employees whose performance met expectations received merit increases averaging 2.5%. As expected, the higher the performance level, the higher the average merit increase, with 4% representing the average increases to the 8% of employees who far exceeded expectations and 3.4% to the 25% of employees who exceeded expectations.

The consultancy said companies are also striving to differentiate short-term incentive (STI) awards based on individual performance. Differentiation between top performers and average performers for 2011 is expected to remain consistent with 2010 levels, with top performing employees receiving bonuses 26% greater than bonuses for employees who met expectations. Further, according to Towers Watson, as the economy shows signs of recovery, fewer salary budgets will be frozen in 2011 than in 2010. Overall, only 5% of organizations that froze salaries in 2010 are planning freezes for 2011.

Analysis of salary budgets by employee group shows that almost one-third of organizations froze executive salaries in 2010, while only 13% plan to freeze budgets in 2011. A similar pattern is seen for management, professional/technical and administrative support employee groups. For these groups, approximately 17% to 20% of organizations froze budgets in 2010, while only 9% plan to do so in 2011. Salary budgets are also improving for hourly employees, where 20% of organizations froze salary budgets in 2010, and only 12% intend to do so in 2011.

While a majority of companies project flat staffing across all employee groups, a growing percentage of participants are planning to increase headcount, according to the study. Hiring freezes are being lifted, especially for professional/technical and critical-skills job families, where 40% and 42% of companies, respectively, anticipate increasing headcount.

A total of 381 organizations provided data on U.S. operations for the study.

A summary of study results is at http://www.towerswatson.com/assets/pdf/4011/Rewards-Flash-survey_US.pdf.