Salary Budgets Static despite Market Turmoil

October 23, 2008 ( - Salary increases planned for 2009 have not yet suffered a blow from recent financial market events, according to a recent Mercer survey.

class=”NormalIndent2″> A Mercer news release said while 24% of participants plan to reduce their base pay budgets from their April projections by one-half percent (average increase for them now stands at 3.2%), 18% plan to hike their budgets from their April projections to an average of 3.8%.

Mercer’s recent pay trends survey was conducted October 3-13, 2008 and includes r esponses from 190 mid-size and large employers across the U.S.

class=”NormalIndent2″> According to the news release, overall, salary budgets for 2009 are projected to be 3.6% for all employees, which is consistent with the April projections of 3.7%.

class=”NormalIndent2″> Mercer said the fact that they are largely static is because 30% indicate that they have made staff reductions and 37% plan, or are contemplating, to do the same. In addition, 32% plan to curtail overall hiring to below replacement levels and another 31% say they have curtailed hiring or are considering it.

class=”NormalIndent2″> Mercer said organizations are broadening performance differentials by granting notably greater salary increases to their top performers. According to Mercer’s survey, the highest-performing employees (15% of the workforce) are expected to receive base pay increases of 5.3% in 2008, compared to increases of 3.4% for average performers (40% of the workforce) and 0.7% for the weakest performers (5% of the workforce).

class="NormalIndent2"> Increased rigor around performance management is most notable for employees assessed at the lowest performance category who received a 1.7% increase in 2007 versus 0.7% in 2008.

class="NormalIndent2"> "The trend to strengthen performance management programs to better differentiate strong from average or weak performers will only gain more traction in the months ahead,"said Steve Gross, global leader of Mercer's broad-based performance and rewards consulting business. "Greater differentiation of top performers allows employers to attract and retain those employees that will contribute to the company's competitiveness and success."

In an environment of generally soft corporate earnings, those companies with weak performance plan reductions in overall short-term incentive (STI) payouts and a reduction in cash bonuses. Short-term incentives for 2008 performance are projected to decline 20% or more across all employee groups. The largest hit is at the executive level-executives are expected to earn a STI payout of 35% of base pay, down from 40+ % for 2007 performance.

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