Preliminary results from the WorldatWork 2011-2012 Salary Budget Survey were released recently, and show barely any changes for 2012, from the 2011 data. 

Even though we are technically two full years into an economic recovery, it's been one of the weakest recoveries on record, and so the impetus for a significant uptick in pay increase budgets is simply not there. At the same time as the economy is plugging along slowly, heath care costs continue to rise rapidly (up an estimated 8% in 2011 and 2012), putting the squeeze on employer compensation budgets.

Despite the generally weak economy and labor market, there are some pockets of significant strength, and thus the data below is not easily generalizable from industry to industry (more specific industry data will be available when the full results are released).  For instance, there is a strength in the technology labor market, the market for engineers, certain health care professionals, technically-oriented consultants, biotechnology-oriented scientists, and a few other pockets.  We would expect that data for many companies in these industries to exceed the overall data below.

On the other end of the spectrum, we would expect below-market level budgets for most of the weakest sectors in the economy, including local, federal and state governments, many non-profits, construction, and the many areas of the economy that serve these major sectors of the economy.

Over the next few months a lot of fresh data will be coming in from the many organizations that conduct various salary budget and compensation practice surveys, and we will update our readers periodically as this information roles in.

Applied HR Strategies will be hosting its annual rewards trends and salary planning workshop on September 28th in Seattle.  For more information, click here.

Last year well over 50% of employers cut their merit budgets or worse (eliminated them or cut base pay).  In a recent webinar I did for Salary.com, about 80% of the 200 or so attendees said they had cut or eliminated their salary increase budgets for the 2009. After the dust settled, 2009 pay increases were the lowest on record, under 2%.

While 2010 will see an increase in pay increase budgets (most studies are projecting 2.5% to 2.9% merit increases for 2010), these budgets remain at historically low levels, and the preliminary numbers for 2011 aren't much higher. Due to the extremely weak economic recovery, it's likely that even these low projected numbers will drop somewhat.

It's hard to imagine that the workforce will be too thrilled with these pay increases, especially when comparing them to what most employees typically received prior to 2009, but since nearly everyone will have modest budgets, it's not like they would do dramatically better elsewhere.  Of course, this assumes that your base pay and cash compensation programs are already competitive, that base pay growth and variable pay are tied to performance, and that you're taking care of your best employees. If not, these tasks should move to the head of your priority lists.

Countless studies in the past few years have shown that employee morale is dropping (and has been for two decades) and half or more or the workforce today is ready to seek out the proverbial "greener pastures" of a new employer.  But is pay the main issue driving  the discontent?  "No," say most of these studies. 

While competitive cash compensation is a critical element of any rewards program, once these basic needs are met, what's keeping the best performers with your company?  Assuming you've already taken care of these basic needs, it's your culture and how you manage and treat your people that can really make the difference (see my recent post on "Can't Buy Me (Workplace) Love" for more on this topic).  With employee loyalty and engagement at an all-time low, quality leadership and management are at a premium (see my colleague Laura Schroeder's excellent post on "...We Must Increase Our Trust") for additional supporting information.

But don't take our word for it. Check out the recent WorldatWork study on the linkage between various reward program elements and engagement. Bottom line: how your workforce is lead and managed is far more important than pay per se in determining workforce engagement and commitment.  The global recession has had a particularly negative impact on employee engagement according to a Hewitt study, but pay isn't the reason.

Both the WorldatWork and Hewitt studies make it clear that visible, trusted and communicative leadership are critical to maintaining high levels of engagement. While the focus of each study were somewhat different, neither study posits pay as a driving factor in employee commitment and engagement.

While pay is, and remains, a critical element in the attraction, retention and satisfaction of the workforce, it is far from the most critical factors in determining overall happiness, commitment and engagement of the workforce. If you've even worked in a "toxic" work environment for an employer that paid well, you'll easily relate.

Pay competitively and treat your workforce well. It's cheaper and more effective than trying to overcome poor people management with extra pay dollars.

Doug Sayed, SPHR, CCP, is principal with Applied HR Strategies, a Seattle-area compensation consultancy, and an instructor, periodic author and publications reviewer for WorldatWork. He is the lead author of the StrategicPay Series Base Pay Toolkit.

Pay increases in 2009 were at an all-time low, at least since good records have been kept on this type of data. In 2009, over 50% of companies either froze pay or worse, by far the highest pay pull-back/retrenchment numbers I have seen in my 25+ year career in HR and compensation.

2010 portends to be a bit better for employees, but employers are still keeping a pretty tight clamp on their purse strings, and understandably so, with economic recovery still looking a bit tepid.  Predictions are for pay increase budgets of about 2.7% in 2010, a vast improvement compared to an average 1.8% increase in 2009, by far the lowest year on record. Both of these data points are from a recently released Hewitt report.

Variable pay budgets (budgets for incentive or "bonus" programs) are expected to remain stable at about 12% for 2010. While the 2010 variable pay budgets are about in line with 2008 and 2009, the long-term trend has seen a slow but steady upward march, and we at the StrategicPay Series expect that trend to continue.  In 1990, corporate variable pay budgets were about 5% of payroll, and today they are more than double that, while merit pay budgets have been at historically low levels since the 2001 recession. 

Hewitt expects variable pay budgets to slowly continue upwards.  In a study released in the spring of 2009, Hewitt predicted  an average variable pay budget of 16% of payroll and a base pay increase pay budget of 2.0% in 2020.

While, of course, no one knows what's going to happen 10 years into the future, the predicted trends are clear: continued pressure on fixed-cost compensation increases (i.e. base pay), combined with a continued willingness to pay for performance, in the form of variable pay.  We agree.