Salary Increases to Rebound Slightly in 2011

August 30, 2010 ( - A new survey by Hewitt Associates shows that companies are spending less on pay raises and variable pay awards in 2010 than they originally anticipated, but they are more optimistic about the future.

Base salary increases for salaried exempt workers were 2.4% in 2010 – down from what employers originally projected in August 2009 (2.7%), but still higher than the record-low pay raises workers saw in 2009 (1.8%). However, for salaried exempt workers, salaried nonexempt workers and executives, Hewitt’s survey shows base pay increases of 2.9% in 2011, and nonunion hourly and union employees can anticipate salary increases of 2.8%.  

According to a press release, although 2010 salary increases are lower than expected, the number of companies freezing salaries this year was down significantly, and this trend is expected to continue into 2011. In 2010, 21% of organizations froze salaries, compared to nearly half (48%) in 2009. Just 10% of employers anticipate salary freezes in 2011.  

In 2010, spending on variable pay as a percentage of payroll for salaried exempt workers was 11.3%, down from a record high of 12% in 2009. Spending in 2011 is expected to creep upward to 11.8% — which would be the second highest increase since Hewitt began tracking the data in 1976, the announcement said.  

About three quarters of respondents (76%) are budgeting for spending on variable pay through improved company performance, while 12% are doing so through reduced merit increases and 10% by reductions in head count. Just 5% of companies are budgeting for variable pay through reduced spending on benefits, while 4% are doing so through pay freezes.  

The survey indicates workers in some U.S. cities can expect to see salary increases higher than the national average in 2011. These cities include Washington, DC (3.4%), Houston (3.3%) and Pittsburgh (3.2%). Cities that can expect lower-than-average increases in 2011 include Philadelphia (2.5%), and Atlanta and Los Angeles (2.6% each).   

The industries that can expect to see the highest salary increases in 2011 include accounting/consulting/legal (3.3%); and energy, aerospace, pharmaceuticals, construction/engineering and real estate (3.2% each). The lowest increases are projected to be in education (2.3%), metals fabrication (2.6%), and automotive and forest/paper products (2.7% each).  

Hewitt surveyed more than 1,450 large companies.