Although more salary increases are expected in 2012, compared to 2011, employers will continue to focus on variable pay, according to Aon Hewitt's annual U.S. Salary Increase Survey.
The findings indicate there is a projected 2.9 percent base salary raise in 2012 for salaried exempt employees, executives, salaried nonexempt and non-union hourly workers, which is a slight increase from 2011 for all groups.
"Three percent is the new 4 percent, meaning we are not likely to be back to the 4 percent levels of the late 1990s any time soon," says Ken Abosch, Aon Hewitt's compensation group leader. "Employees should also keep in mind that despite employers anticipating increases, if current economic conditions continue, the 2012 projections may come in lower than anticipated."
Recommended For You
For the second consecutive year, the amount salary freezes is down. This is believed to continue into 2012, with about 4 percent of employers expecting to freeze salaries. In 2011, 5 percent of employers did not offer salary raises, compared to 21 percent in 2010 and 48 percent in 2009.
Variable pay plans hit a record high in 2011, as 92 percent of employers are carrying out this type of program, which marks a significant increase compared to 2005, when only 78 percent of employers offered variable pay. Regardless of the upward trend, economic pressures are somewhat affecting variable pay in 2011. Employers originally planned on spending 11.8 percent of payroll on these programs for salaried exempt employees but are earmarking 11.6 percent of payroll for variable pay. Spending in 2012 is projected to fall slightly to 11.5 percent.
The survey also finds that 86 percent of employers plan on funding variable pay based on company performance; however, some are funding it by cutting merit increases and reducing head count at 5 percent each. Only 2 percent of employers are budgeting for variable pay through reduced benefits spending while just 1 percent are budgeting through pay freezes.
"The growing use of variable pay along with lower salary increases represents the new normal in compensation practices for employers nationwide," Abosch says. "This pay mix creates greater motivation for employees to be productive and greater flexibility for employers to compensate based on individual and company performance. However, this does create a need for performance discussions throughout the year, so employees know what they are doing well and areas for improvement in order to maximize productivity and potential pay opportunity."
Salaried exempt workers could see salary increases higher than the national average in 2012 in some cities, including Detroit at 4 percent, Dallas at 3.4 percent, Chicago at 3 percent, Houston at 3 percent and Milwaukee at 3 percent. Cities that might experience lower-than-average increases in 2012 are Washington, D.C. at 2.8 percent, New York at 2.7 percent and Philadelphia at 2.7 percent.
The industries that are believed to face the highest salary increases in 2012 are energy, oil and gas at 3.6 percent; real estate at 3.6 percent; construction and engineering at 3.5 percent; telecommunications at 3.2 percent; and nonprofit at 3.2 percent while the lowest increases are anticipated to be in government at 1.7 percent; building materials at 2.5 percent; research and development at 2.5 percent; rubbers, plastics and glass at 2.6 percent; and education at 2.6 percent.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
