The Latest Word on Salary Increases: For 2011, it Looks Like 2.8%

Here’s the latest on salary increases for 2011, and if this all sounds vaguely familiar it’s because the latest survey and forecast is not far off from a lot of other surveys and predictions you read about here over the last six months.

Global consulting firm Hay Group‘s latest 2010 U.S. Salary Budget Spot Survey now says that U.S. employees can expect median base salary increases of 2.8 percent this year, up slightly from actual median base salary increases of 2.4 percent in 2010, but down slightly from an expected 3 percent increase for this year that an earlier Hay Group survey forecast back at the beginning of July.

How you view a 2.8 percent salary increase depends on your perspective, of course, and that may vary depending on whether you have had a pay freeze, salary cut, furlough days, or perhaps even a period of unemployment in the past year, but the Hay Group’s analysis in its 2010 U.S. Salary Budget Spot Survey is somewhat bullish and even a bit upbeat.

In line with earlier predictions

“Relatively speaking, a forecasted median 2011 base salary increase of 2.8 percent is good news for employees who, over the past two years, saw the lowest salary increases in decades,” said Tom McMullen, Hay Group’s North American Reward Practice Leader, in a press release accompanying the survey. He added, “(The) survey also points to a positive trend in organizational staffing. We found that the number of organizations increasing their staffing levels is double that of organizations that are decreasing their staffing levels.”

A 2.8 percent salary increase this year shouldn’t come as much of a surprise to anyone. This is in line with what Buck Consultants (a 2.8 percent increase) and Mercer (a 2.9 percent bump) predicted last fall, although it’s more than The Conference Board forecast (only a 2.5 percent hike) last summer.

Here are some of the other findings of the Hay Group survey that are interesting to note:

  • Much of the work in taking out labor costs due to the recession has already happened.
  • The percentage of organizations utilizing or considering significant labor cost reduction items is considerably lower than data reported 18 to 24 months ago.
  • The majority of organizations are maintaining existing staffing levels.
  • There is a continued emphasis on increasing benefits employee co-pays and scaling back on employer paid coverage.
  • Almost 50 percent of organizations report either actual recent increases in employee co-pays (or reduced employer paid coverage) or consideration of doing this in the near future.

Little difference for top performers

One fairly discouraging but not surprising survey finding: Top performers are expected to get a median increase of only 3.1 percent versus the 2.8 percent increase for the typical employee. That’s not much difference between top and average performers, and can ultimately make it hard for organizations to keep top talent in the fold.

“Organizations have a difficult time differentiating pay increases when the pot of money gets smaller,” the Hay Group’s McMullen noted. “Couple this with the ineffectiveness of many line managers in assessing employee performance and undifferentiated pay is the outcome. Managers have an opportunity to utilize their suite of ‘total’ reward programs – all of the financial and non-financial rewards that the organization provides – to reinforce the link back to individual and team performance.”

You can get the details of the Hay Group’s 2010 U.S. Salary Budget Spot Survey here. The forecast results “are based on the latest data available from Hay Group’s U.S. database, provided by 468 U.S. organizations in November 2010. Typical respondents to the survey include compensation professionals in the Human Resources departments of small to large size U.S. organizations across a wide range of industries. Hay Group’s core compensation database represents compensation practices for almost 3,000 companies and over 6 million employees.”

But for some, 2.8% might actually be a good thing

Yes, 2.8 percent isn’t a great increase, especially if you were expecting more because you haven’t gotten much of any kind of an increase the last couple of years. But remember, it could be worse. Here’s what one better-left-unnamed company e-mailed its employees about 2011 raises:

The Board of Directors … approved a 2 percent increase for employees whose salaries are $50,000 or less annually, effective January 1, 2011.  Excluded from this group are those on a sales commission arrangement, those hired after June 30, 2010, and any others who might have received a salary adjustment after June 30, 2010. Finally, any employee whose performance is not in good standing will also be ineligible for this salary increase. Your HR manager will review the list of your employees with you prior to January 1.

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The Board of Directors decided to delay decisions regarding increases for the rest of the organization until after the first quarter of 2011. At that time, we hope the economic climate and its impact on our business will be a little clearer. Further communication will be provided at that time.”

Remember, you could be working at THAT company, where only a very limited group of employees are getting a 2 percent raise. Everybody else gets to wait until April or later to find out if they are getting anything at all.

Makes you appreciate a 2.8 percent increase this year, doesn’t it?