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two economies still exist for US workers

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Regarding pay raises, Mercer survey shows that two economies still exist for US workers


United States , New York


 


  • Compensation budgets remain lean, focus stays fixed on top-performing employees
  • Employers continue to strengthen the relationship between pay and performance, and employee engagement

 

As the economy slowly improves, for some workers the pay raises will follow. New survey results show 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. However, for top-performing employees – just 8% of the workforce – salary increases will remain high as organizations struggle to balance relatively stable compensation planning budgets with retention of critical talent. See Figures 1 and 2.

 

According to Mercer’s 2011/2012 US Compensation Planning Survey, 97% of organizations are planning to award base pay increases in 2012. Moreover, half (50%) of organizations that report higher 2012 pay increases than those granted in 2011 cited greater competition for workforce and anticipated labor shortages as the main reasons.

 

Mercer’s most recent survey on compensation trends, which has been conducted annually for more than 20 years, includes responses from more than 1,200 mid-size and large employers across the US and reflects pay practices for more than 12 million workers. The survey results are captured for five categories of employees: executive, management, professional (sales and non-sales), office/clerical/technician, and trades/production/service.

 

“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. “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.”

 

Workforce segmentation
As organizations continue to struggle with balancing reward programs and limited budgets with the need to retain critical talent, they are segmenting their workforce and concentrating rewards on key and top employees. As a result, the gap between high-performing employees and those in the lower performing categories is widening significantly. Mercer’s survey shows the highest-performing employees (8% of the workforce) received average base pay increases of 4.4% in 2011 compared to 2.8% for average performers (54% of the workforce) and 0.4% for the weakest performers (2% of the workforce). See Figure 2.

 

“The continuing fragile economy has caused employers to remain worried about increasing compensation; however they are more worried about losing their best employees to their competitors,” said Ms. Hartmann. “Differentiating salary increases based on performance has become a necessity with limited resources. In this less-than-robust environment, top-performing employees are an employers’ competitive weapon and they are doing their best to reward them accordingly.”

 

Pay for performance and employee engagement
As employers segment their workforce and grant pay increases based on performance, they are investing more time reviewing the relationship between employee performance and pay, and being more specific about engaging employees.

 

According to Mercer’s Next Generation of Pay for Performance Survey, more than two-thirds (69%) of employers in the US are working to increase differentiation of pay based on performance. Additionally, the survey shows that organizations’ primary objectives for focusing on pay for performance are to attract and retain top talent, drive specific behaviors or results, and encourage engagement. See Figure 3.

 

“Distinguishing pay based on performance is an effective way for employers to assess workforce needs and invest in those employees that will advance the organization,” said Ms. Hartmann. “And by doing so, they’re establishing higher expectations for top performance – essentially, a ‘new standard’ for their employees.”

 

Yet organizations must tread carefully. Mercer’s What’s Working research shows overall scores are down consistently across employee engagement measures, 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,” said Ms. Hartmann, “and they’re going to have to look to incentives beyond pay to keep employees onboard and motivated.”

For more information about Mercer’s 2010/2011 US Compensation Planning Survey or Next Generation of Pay for Performance Survey, visit www.imercer.com/cps or call 800 333 3070.

 

About Mercer
Mercer is a global leader in human resource consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues by designing, implementing and administering health, retirement and other benefit programs. Mercer’s investment services include investment consulting, implemented consulting and multi-manager investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit www.mercer.com.

 

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Figure 1: Average base pay increases by employee group

 

2011 Salary Increases

Projected 2012 Increases

 

(excluding 0s*)

(including 0s)

(excluding 0s*)

(including 0s)

All Employees

2.9%

2.7%

3.0%

2.9%

Executives

3.0%

2.8%

3.0%

2.9%

Management

2.9%

2.7%

3.0%

2.9%

Professional (sales and non-sales)

 

2.8%

 

2.7%

 

3.0%

 

2.9%

Office/Clerical/Technician

2.8%

2.7%

2.9%

2.9%

Trades/Production/Service

2.8%

2.7%

2.9%

2.8%

Source: Mercer, 2011/2012 US Compensation Planning Survey 

* Percentages are averages.

 

Figure 2: Pay increases as a function of performance

 

Percent of Workforce*

Average Pay Increase*

Highest-rated

8%

4.4%

Next Highest-rated

30%

3.6%

Middle-rated

54%

2.8%

Low-rated

6%

1.2%

Lowest-rated

2%

0.4%

Source: Mercer, 2011/2012 US Compensation Planning Survey 

*Based on the majority of organizations (54%) differentiating performance using a five level rating system (21% of organizations used a four level rating system and 14% used a three level system).

 

Figure 3: Primary pay for performance plan objective

 

Source: Mercer, 2011 Next Generation of Pay for Performance Survey