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.

As a compensation professional who tries his best to stay up on what's happening on the business, HR and compensation world, I must say that I'm astonished at how much information and advice is available, especially on-line.  There is an amazing array of information for HR and compensation professionals on the web, but but it requires a fair amount of sifting through the mass of information to find the really valuable pieces of information out there.

One blog posting I read this morning while catching up on the latest happenings really got me going. The post, "Six Pay Raise Alternatives" presents some good issues and ideas to think about, but also floats a fair amount of questionable ideas and advice.  Briefly paraphrasing, here are six pay raise alternatives that were suggested:

1. Pass into your employees some of the perks you as a manager receive. The primary examples used were sporting and concert tickets, such as "a $150 ticket to a Billy Joel concert goes a long way, and provides maximum ROI." First of all, while this would be a nice firm of recognition, it's not a credible pay raise alternative.  Second, if the company is following the IRS code (always a good idea!), this example would create a taxable event for the employee, but I digress...
2. Treat your employee to a luxury meal. Certainly a nice gesture, and one that many employees would appreciate, but this is another form of recognition that should be an ongoing part of being a good manager, by recognizing and expressing appreciation for your employees and their performance. 
3. "Give cell phone breaks." Another nice gesture, but something employers should already be assisting with or providing for employees who are expected to be available or reachable most hours of the day.  This is a mild perk/benefit, but certainly not something virtually any employee would consider to an alternative or substitute for a merit-based pay increase, even a small one (which most of them are today).
4. "Award your employee a new title."  Yikes!  As compensation advisor that spends a good chunk of his time trying to untangle the messes and expectations that lie behind the indiscriminate awarding of job titles, this is really unsound advice (and I'm struggling to stay diplomatic).  Anyone who tells you that job titles are "free" or don't change expecations doesn't understand what they are talking about, because inflated or "vanity" titles almost inexorably lead to internal equity concerns, revised and/or unrealistic pay expectations, etc.
5. "Offer flexible schedule or telecommuting."  Yea, something we can agree on, but not really a pay increase alternative, although this would be considered is a valuable benefit to some.  Many employees appreciate the opportunity to save on commuting time and related time and cost elements of going into the office every day.  This benefit should be reserved for highly motivated self-starters that don't need a lot of prodding or supervision (in other words, the employees you should fight to give a raise to, and to ensure their on-going pay competitiveness).
6. Let your employees come up with their own perk, and if it's a viable option, implement it immediately.  This option has appeal on it's face, but be aware of potential perceptions of internal equity issues or favoritism.  I'm not opposed to individualized rewards and recognition, but most employees are are keenly aware of what they observe around them, and it they sniff "unearned" or obviously inequitable rewards, you as a manger will will suffer from other morale and internal equity concerns that can challenge your credibility and effectiveness.

There are actually some really good nuggets embedded in here: recognition is a good thing, but it's not something that should be done only on special occasions.  It's a part of being a good manager and component of being an employer of choice. Other nuggets: people really appreciate being appreciated, and we recommend showing appreciation as a habit, and not something done on an infrequent or special-occasion basis.

In short, there is a lot of information and advice out there, but be discriminating and choose carefully, because when it comes to base pay and other forms of rewards and recognition, there can be negative or unintended consequences of poorly designed efforts and programs.

For instance, if you're looking to implement a new recognition or incentive program, or a strategy to address pay issues while keeping down fixed cost increases, talk with a specialist or at least someone who truly understands the issues, alternatives and consequences of of various strategies and approaches.  Too much is at stake to to take the chance of implementing poorly-designed programs or un-vetted ideas without considering the consequences.

OK, I'm getting off the soapbox!

2010 Salary Planning Roundup

Many thanks to my blogging partner at the Compensation Cafe, Ann Barnes, who also has her own blog called Compensation Force, for letting me post her excellent summary of the most recent salary planning data for 2010. 

From Compensation Force:

As has become a tradition of sorts here, I have compiled the high level 2010 salary planning data from a number of the most well-known sources and am presenting it here ... for your reading pleasure.

The table below features research on average salary increases (both actual 2009 and projected 2010) from the salary planning surveys published by Watson Wyatt, WorldatWork and Hewitt, organized by employee group.

More information to follow, as more data comes in. Happy Planning!

Preliminary results from Culpepper's annual survey of salary budgets reveal that global base salary increase budgets have risen by an average of 51 percent from 1.89% in 2009 to 2.85% in 2010 (see below for U.S. data). The survey was conducted from late June through mid August, 2009.

Key Findings from the study:

• The number of companies freezing salaries is projected to decline from 37 percent in 2009 to 13 percent in 2010.
• Excluding salary freezes (companies projecting a 0% increase), global base salary increase budgets are projected to increase slightly from 3.18% in 2009 to 3.27% in 2010.
• Base salary increases in the U.S. are projected to increase from 1.63% in 2009 to 2.65% in 2010. Excluding organizations projecting a 0% increase budget, salary increases in the U.S. are projected to hold relatively steady from 3.08% in 2009 to 3.07% in 2010.
• Base salary increases in Canada are projected to increase from 1.13% in 2009 to 2.38% in 2010. Excluding freezes, salary increases in Canada are projected to increase slightly from 2.95% in 2009 to 3.02% in 2010.
• Base salary range structure increases are projected to increase from 1.18% in 2009 to 1.61% in 2010. Excluding freezes, salary range structure increases are projected to decline slightly from 2.84% in 2009 to 2.70% in 2010.
• Additional breakouts and data for over 80 additional countries will be published in the final report, available September 2, 2009.

Salary increase budgets have changed dramatically over the past year. In August 2008, before the global economic crisis unfolded, average base salary increases exceeded four percent (Figure 1) and only two percent of companies were freezing salaries (Figure 2). From late 2008 through mid-2009, the number of companies freezing salaries increased to 37 percent, which drove average base salary increases below two percent.

Overall, projections for 2010 have improved significantly compared to 2009. However, a relatively high number of companies plan to freeze salaries in 2010, and average projected base salary increases are still much lower than recent years.

Data Source: Culpepper Trends Survey of 714 participating organizations reporting salary increase data.

Availability of Final Results:
A comprehensive report with final results and analysis from our recent survey, 2009-2010 Salary Budget & Planning Survey, will be available by September 2, 2009. The final comprehensive report will include data breakouts for the U.S. and Canada by job function/level, number of employees, and industry sector. Additional breakouts will be available for 90 countries and 16 international geographic regions.

Source: Culpepper Trends Surveys, August 2009, www.culpepper.com.

Full disclosure: Culpepper is a strategic partner of the StrategicPay Series.

On August 25th (9am Pacific Time, 12pm Eastern) WorldatWork will offer a FREE webinar outlining the results of their recently-released 2009-2010 Salary Budget Survey (SBS).  You must be a WorldatWork member to attend for free.

If you're not a WorldatWork member, you can obtain a copy of the SBS for $235 at this link.

This is essential information for all HR and compensation professionals involved in compensation budgeting and planning. Hopefully you can either attend the webinar and/or purchase the survey itself.

Either way, follow this blog for more information on salary budget and related trends.