Studies: Bulk Of Pay Raises To Go to Best Performers

Salary planning for 2009 is in full gear for many employers. Last month, Watson Wyatt Worldwide released salary projections suggesting employers would boost pay an average 3.5% in 2009. Later this month, Hewitt Associates will release its salary increase survey projecting an increase closer to 3.8%. And yesterday, Mercer released its report suggesting a 3.7% increase in 2009. In addition, the recently-released 2008-2009 WorldatWork Salary Budget Survey suggest very similar increases in the 3.7% to 4.0% range, depending on the employee group,

The Watson Wyatt study says that employers will reserve the bulk of their pay raises for higher performers. Low-performing employees won't see their paychecks rise much.

"Companies are trying to use their money more wisely," said Steve Gross, a global practice leader at Mercer LLC. The Mercer study suggests that employers are shifting what little they have to offer in the way of merit raises to their best performers. With inflation rising and business conditions deteriorating at the same time, employers are going to have to be more "discriminating" in how they spend their limited pay increase dollars to retain their top talent.

Another way that employers are rewarding top performers is through greater use of variable incentive pay (simply called "bonuses" at many companies). Both the WorldatWork and Mercer studies show at least 80% or more of companies offer such incentive pay, and their prevalence continues to slowly increase, as does the dollars that are budgeted for such programs.