Employers Continue to Differ Raises Based on Performance

August 22, 2011 (PLANSPONSOR.com) - U.S. employers are projecting moderate pay raises for employees next year, but do expect to fully fund their annual bonuses for workers this year, as corporate profits have increased, according to new survey data by Towers Watson.

A survey of 773 U.S. companies conducted by Towers Watson Data Services found companies are planning pay increases that will average 2.8% in 2012 for their salaried nonexecutive employees. This represents a moderate increase from the average 2.6% raise workers are receiving this year and 2.6% they received in 2010, a press release noted. Similar raises for 2012 are planned for executives and nonexempt employees.   

According to the survey, workers who receive the highest performance ratings will be in store for median salary increases of 4.5% this year, which is 80% more than workers with average ratings will receive (2.5%). Workers with below-average performance ratings will receive median merit increases of 1.4%.   

“Until the economy shows some solid and consistent improvement, most companies are keeping their salary budgets relatively tight,” said Laura Sejen, Rewards Global Practice Leader at Towers Watson, in the announcement. “At the same time, companies also recognize the need to reward their top performers or risk losing them to competitors and, as a result, continue to differentiate pay raises based on individual performance.”  

A separate survey of 316 North American companies conducted by Towers Watson found that companies’ average projected bonus funding for current-year performance is 101% of target, marking the second consecutive year that companies are able to fully fund their annual bonuses for workers. Companies funded annual bonuses in 2010 at 111% of target.   

The Towers Watson North American Talent Management and Rewards Survey was conducted in May and June of 2011 and the Towers Watson Data Services Salary Budget Survey was conducted in June and July of 2011. The Towers Watson Data Services Salary Budget Survey Report provides data on actual salary budget increase percentages for the past and current year, along with projected increases for next year. Reports for both surveys will be released in September.