Merit Increases Rebounding from Recession

February 24, 2011 ( - U.S. employers are planning to give employees this year the largest merit increases since the start of the financial crisis, according to a new survey by Towers Watson.

The survey found that companies are optimistic and are budgeting merit increases of 3% for 2011.  That compares with the 2.7% merit increase awarded to employees overall in 2010 and is the largest merit increase since before the financial crisis when increases typically averaged 3.5% – 4%. 

According to a press release, though the horizon is brighter for most companies, the survey also found that 5% of companies plan to freeze salaries for all workers this year, the same percentage as last year. However, 13% of companies plan to freeze salaries for executives while 12% plan to freeze salaries for hourly workers. Both figures are down sharply from 2010.  

Companies provided the largest merit increases (4%) in 2010 to workers who far exceeded their performance expectations, while those who exceeded expectations received a 3.4% average increase. Conversely, workers who did not meet performance expectations did not receive any increase in 2010.

Hiring Freezes Thawing  

The new survey by Towers Watson also found that the hiring freezes that were put into place during the recession are beginning to thaw, especially for professional and technical workers, and positions that require employees with critical skills.  

Forty-two percent of companies are planning to hire workers for positions that require critical skills this year, while 40% plan to add professional and technical workers to their payrolls. One in four companies also plans to hire sales professionals and hourly workers in 2011.   

The survey also indicates that the attraction and retention challenges that employers are facing are confined to select employee groups - primarily critical-skill and top-performing employees. More than half (54%) of companies reported problems attracting critical-skill workers, while 37% are having difficulty hiring top-performing employees. About three in 10 companies report problems retaining critical-skill employees, while one in four have difficulty retaining top performers.   

The Towers Watson survey was conducted in late January and early February, and is based on responses from 381 large and mid-size U.S. employers representing a broad range of industries.