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More Pay Raises in 2010

Good news for the coming year for many employees. Having struggled with cost-containment challenges during the past 18 months, which resulted in workforce reductions and salary freezes, more organizations are planning to grant pay increases in 2010 as the economy begins to show signs of improvement.

According to Mercer’s 2009/2010 US Compensation Planning Survey Update, the number of organizations freezing salaries has declined compared to last year. While challenging economic conditions drove 30% of employers to freeze salaries across the board in 2009, just 14% are planning across-the-board freezes in 2010.

Of those employers granting base pay increases, the average increase is expected to be 2.7% in 2010, down from an actual 3.2% in 2009, and slightly less optimistic than the increases planned earlier this year for 2010. Including salary freezes, average base pay increases for 2010 are projected to be 2.3%.

Mercer’s most recent survey on pay trends, which was conducted in November and includes responses from more than 350 midsize and large employers across the US, provides an update to its 2009/2010 US Compensation Planning Survey from earlier this year.

“While planned 2010 base increases have dropped a bit from employers’ projections in April and are less than 2009 increases, this is still positive news given the fewer firm-wide pay freezes and staff reductions planned now compared to this time last year,” said Loree Griffith, a principal with Mercer’s rewards consulting business.

According to Griffith, as companies prepare for an economic recovery, they are focusing on retaining employees and engaging top talent.

“Employers are still juggling selective hiring with selective cuts in staff as they evaluate specific workforce needs,” said Griffith. “Recognition programs, career development, training opportunities. and creative communication campaigns—efforts that help keep employees engaged and motivated—along with incentive pay strategies, will give companies a competitive edge as business begins to improve.”

Consistent with base pay increases, Mercer’s survey shows that short-term incentive payouts are projected to decrease slightly in 2010. On the whole, average payouts as a percentage of base pay for all employee groups are reasonably stable.

Furthermore, differentiation of short-term incentive awards continues to vary by performance levels with the highest-performing employees projected to receive average payouts (as a percentage of base pay) of two to four times more than the lowest-performers.

Variation by Industry
Despite projected 2010 salary increases that are lower than what has been experienced in recent years, industry variations are evident. While 20 percent of durable goods manufacturers and 18 percent of services firms are expected to maintain pay freezes in 2010, less than 5 percent of consumer goods and insurance firms are expected to have freezes.

Compared to the expected average pay increase of 2.7% in 2010, employers within the consumer goods and high-tech industries have the highest projected pay increase at 3.0%. In contrast, other industries expect to award less than average pay increases in 2010. Education is among these sectors with a projected base pay increase of 2.2% along with health and medical insurance projected at 2.4%.

“The marketplace for top talent remains competitive,” said Griffith. “Despite budgetary constraints, growth sectors are boosting salaries for select employees, and overall in some cases, in an effort to attract and engage talent necessary to continue at existing performance levels.”

Mercer is a leading global provider of consulting, outsourcing and investment services. For more information, visit www.mercer.com