Employers to raise worker pay by 2.9% next year

Despite a strengthening economy, pay raises next year will only be slightly more generous than they have been over the past few years.

Employers anticipate increasing worker salaries by an average of 2.9% in 2014, just marginally better than the 2.8% boost they gave this year, according to an annual survey of 1,500 mid-size and large U.S. employers by consulting firm Mercer. 

While a vast improvement from 2009, when raises averaged 2.1%, the expected pay increases are still a far cry from mid-2000 levels when they averaged around 3.5%, according to Catherine Hartmann, a principal in Mercer's Rewards consulting business. 

That's partly due to the still high unemployment rate. In June, the unemployment rate was 7.6%, meaning employers in many industries still have the upper hand when it comes to hiring and can easily recruit and retain employees without increasing salary offers. 

Also weighing on wages are increased costs tied to retirement and health care benefits, which leave less available money for salary increases. 

"This is the new normal," said Hartmann. "This is the way things have settled in."

To remain competitive, however, employers will eventually have to increase pay, especially among top performers. 

"Employers recognize that their greatest challenge is to retain their top performers to avoid post-recessionary flight," said Jeanie Adkins, who is a partner in Mercer's Rewards practice. "This means they have to reward them." 

Employers expect to give their top tier workers raises averaging 4.6%. That's compared with average pay increases of 2.6% for average workers and 0.2% for their worst performers. And almost half of all projected raises for 2014 will go to the top third of workers.  

Employers experiencing worker shortages, or trying to retain or recruit top talent are also using other means to reward workers. 

About 77% of information technology firms report using spot cash awards, in addition to aggressive salary increases, to attract and keep workers, while 60% used milestone incentives and 67% offered signing bonuses. Financial, legal and engineering firms are also likely to give bonuses.

According to Mercer, employers expect to promote an average of 6% of employees, with the raises accompanying those promotions averaging between 6.2% and 8.1% of their base pay. 

Just 3.7% of companies reported that they froze salaries in 2013, a dramatic decline from the 6.5% of firms that froze wages in 2012. Even better, only 0.9% forecast wage freezes for 2014. 

Mercer's survey reflects the pay practices of companies that employ more than 13 million workers. The results cover five employee categories: executive, management, professional, office/clerical/technician, and production/service.

Sources