With the continued uncertainty of the global economy, U.S. employers are expecting moderate pay raises in 2013 as they closely monitor costs, and they don't anticipate completely funding their annual bonuses in 2012, according to a new survey from global professional services company Towers Watson.
Specifically, respondents say they predict pay increases will average 2.9 percent in 2013 for their salaried nonmanagement employees, up from 2.8 percent in 2012 and 2.7 percent in 2011. Raises for for executives and non-exempt employees in 2013 are expected to hit similar levels.
"Most U.S. companies continue to keep their salary budgets relatively tight, especially since they are having little difficulty attracting and retaining employees, in general, reflecting the soft labor market," says Laura Sejen, global practice leader for rewards at Towers Watson.
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"At the same time, most organizations are having as much trouble attracting and retaining critical-skill employees as they did during the economic expansion from 2002 to 2007," she says. "With base pay remaining a top driver of attraction and retention for these employees, organizations will need to focus on allocating available resources toward rewarding top performers and employees with critical skills."
Exempt workers who receive the highest performance ratings are expected to receive 4.7 percent average salary in 2012, the survey finds. This is approximately 50 percent more than workers with average ratings at 3.2 percent. For workers with below-average performance ratings, they are projected to receive 1.3 percent average merit increases.
A separate Towers Watson survey finds that companies' average projected bonus funding for current-year performance is 93 percent of target, which represents the second consecutive year that companies failed to fully fund their annual bonuses for workers.
In 2011, U.S. companies funded annual bonuses at 95 percent of target.
"Companies have been increasing performance expectations for individuals and the organization," says Laurie Bienstock, North America rewards leader at Towers Watson.
"Employees are feeling the stress of trying to meet these increasing demands, and many feel unsupported. Organizations that raise the performance bar without also increasing rewards to reflect these efforts are in danger of an erosion of employee engagement and performance. Companies will have to make up for these lower funding levels by doing a better job of differentiating rewards between top performers and underperformers."
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