According to recent Hay Group research from more than 300 organizations across all industry sectors, planned 2011 base salary increases are at a median of 3 percent and reflect an uptick relative to March 2009, when salary increases were at a low point of 2 percent for most employee groups and zero percent for executives. After factoring in annualized Consumer Price Index growth for 2010 at 2 percent, the result is a real gain of 1 percent.

At the beginning of this decade, base salary increases were tracking between 4.5 percent and 5 percent and then at a steady 4 percent from 2005 to 2008. While the past three years have seen the lowest base salary increases that most employees have ever experienced, planned increases for 2011 are slightly higher versus last year and are consistent across executive, middle management, supervisory, and clerical positions and relatively consistent across most industry sectors.

The current economic outlook in the U.S. continues to cause most businesses to exercise caution in growing their fixed costs, including base salaries.

Those organizations that survived the immediate challenges of a deep and wide-reaching downturn have emerged to a changed landscape – one that’s more cost-conscious and performance-oriented.
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Organizations are emerging from the recession leaner and focused on activities that offer the greatest returns; in other words, they’re working to ensure they don’t waste the opportunity a recession gives them to make needed changes. Difficult choices are being made as available money has to be earned via performance and allocated to those areas and people most critical to business success.

While the focus remains clearly on the bottom line, increased labor productivity and performance will be a core driver of profit growth going forward.

The performance-oriented, post-recession world in which organizations are operating has significant implications for line managers and talent management professionals.

Many organizations have a relentless focus on performance as they seek to reverse some of the sloppy performance management practices of past years.

Many organizations are emphasizing total reward programs – engaging employees in non-monetary ways via the development of more meaningful work experiences, clearer career paths, work-life balance programs, global mobility opportunities, targeted development opportunities, building better work climates and the like.

While there is not a significant change in pay increases for the coming year, the mix of that pay is changing. As organizations emerge from the recession, they are shifting more of their focus from fixed compensation (i.e., base salary) to variable pay, which includes all cash payments beyond base salary (i.e., short-term incentives, bonuses and long-term incentives), but does not include perks or benefits. Variable pay has proven to be an effective lever for motivating performance and reinforcing the focus of employees with the organization’s goals and priorities.

Many organizations are working harder than ever to align their reward, performance and business strategies – either because their business strategy has changed or because alignment to the business strategy was not already optimized. This means ensuring that the right performance metrics are used and that reward programs are closely tied to those metrics; performance and rewards are appropriately differentiated; supporting performance management processes are in place; and leaders have the capability and commitment to implement and communicate reward programs effectively.

So, while base salary increases aren’t as strong as they’ve been in the past 10 years, the opportunities for talent managers to think more creatively in motivating and engaging their organization’s talent is likely at an all-time high.
by Tom McMullen | Talent Management
[About the Author: Tom McMullen is North American reward leader for Hay Group.]

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