As the economy improves, the survey found that the average increase in base pay is expected to be 3.0% in 2012, up slightly from 2.9% in 2011 and 2.7% in 2010. Top-performing employees (who represent 8% of the workforce), however, may expect a larger bump (4.4% in 2011) as organizations struggle to balance compensation budgets with retention of critical talent.
Average performers (54% of the workforce) received an average 2.8% increase in 2011, while the weakest performers (2% of workers) received pay raises of only 0.4%.
“The risk of losing key employees weighs heavily on employers as their compensation budgets remain flat,” said Catherine Hartmann, a Principal with Mercer’s Rewards consulting business, in a news release. “Employers realize that in order to hang on to their best employees, they’re going to have to reward them. And while non-cash rewards, such and training and new opportunities, enhance retention, base pay is still the most important element of the employment deal.”
According to the survey, 97% of organizations are planning to award base pay increases in 2012.
Among those who reported higher 2012 pay increases than those granted in 2011, 50% cited greater competition for workforce and anticipated labor shortages as the main causes.
“Differentiating salary increases based on performance has become a necessity with limited resources,” Hartmann said. “In this less-than-robust environment, top-performing employees are an employers’ competitive weapon and they are doing their best to reward them accordingly.”
The annual US Compensation Planning Survey includes responses from more than 1,200 mid-size and large employers across the U.S. and reflects pay practices for more than 12 million workers. More information on the survey is available here.
Additional research saw that more than two-thirds (69%) of employers in the U.S. are working to increase differentiation of pay based on performance.
In Mercer’s Next Generation of Pay for Performance Survey, employers’ top reasons for this approach were cited as:
- to attract and retain top talent (listed by 90% of employers);
- to drive specific behaviors or results (64%);
- to encourage employee engagement (41%); and
- to motivate employees to work harder (34%).
Mercer’s What’s Working study showed scores across employee engagement measures are down consistently, including strong sense of commitment to the organization and willingness to go beyond job requirements to help the organization succeed, while intention to leave is up.
“Employers clearly face significant challenges with raising engagement levels,” added Hartmann, “and they’re going to have to look to incentives beyond pay to keep employees onboard and motivated.”
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