NEW YORK, September 19, 2013 — A mixed bag of news regarding pay raises awaits U.S. workers. A new survey by global professional services company Towers Watson (NYSE, NASDAQ:TW) shows that most U.S. employers are planning to give workers a raise next year, but the increases will be only slightly larger than those in the past couple of years. The survey also shows it pays to be a “star” performer, with those workers receiving raises that are more than 75% greater than pay hikes for average performers.
The survey of 910 U.S. companies conducted by Towers Watson Data Services found that only 4% of respondents are not planning to give salary increases next year — the same percentage of companies that did not give raises this year, but far fewer than the 75% that froze salaries during the economic crisis in 2008. According to the survey, companies are planning pay increases that will average 2.9% in 2014 for their salaried nonmanagement employees. That is slightly larger than the 2.8% average raise workers received this year and in 2012. Similar raises are also planned for executives and nonexempt employees.
“With the job market remaining relatively soft, most companies aren’t feeling pressure to raise salaries by much more than the rate of inflation,” said Laura Sejen, global practice leader for Rewards at Towers Watson. “And the rising cost of health care doesn’t leave companies with much in their total rewards budget for pay raises. Still, pay remains one of the most important factors when an employee considers joining or remaining with a company, so employers need to be cognizant that they potentially risk losing employees if their compensation programs aren’t in sync with competitive market practice.”
Raises for Stars Outpace Raises for Average Performers by 75%
According to the survey, exempt workers who received the highest performance ratings were granted an average salary increase of 4.6% this year, more than 75% greater than the 2.6% increase given to those workers receiving an average rating. Workers with below-average performance ratings received an average merit increase of 1.3%.
“Some employers continue to struggle with how to distinguish appropriate compensation for top-, average- and poor-performing employees,” noted Sejen. In fact, a separate survey by Towers Watson released earlier this month showed that about one-fourth of companies expect to award annual incentive payouts even to employees who fail to meet performance expectations.
“Retaining top performers and critical-skill employees is a significant challenge for most U.S. employers, even with the ongoing overall softness in labor markets. As a result, companies are resorting to a variety of reward strategies to make sure these employees don’t seek employment elsewhere when the job market heats up. This includes rewarding their best-performing workers with bigger pay raises, large incentive payments, and also one-time discretionary and spot bonuses,” said Laurie Bienstock, North America Rewards leader at Towers Watson.
The Towers Watson Data Services Salary Budget Survey was conducted in June and July of 2013, and includes responses from 910 U.S. companies representing a cross section of industries. The survey report provides data on actual salary budget increase percentages for the past and current year, along with projected increases for next year.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.