Compensation Trends that May Impact Your Business
2011 is quickly drawing to a close. But before the year ends, it’s time to look forward to 2012 and some compensation issues and trends that may impact you and your employees in the New Year.
The highly anticipated economic recovery of 2011 didn’t happen for many businesses. Business growth continues to be sluggish while overhead costs continue to increase. And many top economists predict more of the same for 2012.
All this may mean that your organization doesn’t have a lot of extra money to increase employee compensation. As a result, it’s important to plan your compensation spending to get more bang for your limited bucks. As you start your 2012 compensation planning, here are some things to be aware of:
2012 Salary Budget Projections
Early 2012 salary projections forecast pay raises of 2.8% – 3.0% for most employee groups across industries. Salary increases are expected to be highest in the Western and South Central areas of the United States and lowest in the Southeast. These figures represent a slight increase from 2011, but still remain much lower than the 4% – 5% budgets of the early 2000’s.
These smaller forecasts are particularly challenging for employers using a merit-based pay system that attempts to recognize and meaningfully reward differing levels of performance. If you’re attempting to keep your salary expenditures to a pre-set budget amount of 3%, the majority of employee increases will fall between 2% and 4% – not a big difference, especially for lower-paid employees.
Growth of Incentive/Bonus Plans
Many employers are choosing to supplement (or even replace) their merit-based pay programs with incentive and bonus payments. Awarding incentive or bonus payments based on individual, team, and/or organizational performance results is becoming an increasingly common practice across industries and includes organizations of all sizes and employees doing all types of work. A recent Payscale.com survey reported that approximately 60% of surveyed organizations will make some payment of this type in 2011.
By linking payments under these plans to the achievement of specific goals organizations can reward results that directly increase profitability. And since these payments are generally one-time occurrences that don’t increase base salaries, the amounts can often be larger and more meaningful to employees.
Health Care Cost Increases
A recent Pricewaterhouse Coopers report projects employer health care costs to increase approximately 8.5% in 2012. Although this number is lower than in previous years, most employers will expect their employees to share these increased costs by raising deductibles, increasing co-pays, and increasing employee share of premiums.
With salary increase projections for 2012 averaging only 3%, many employees will see an actual decline in their pay. As the job market improves and competition for skilled workers increases, employers will be challenged to offer competitive salary and benefit packages to recruit new talent and retain existing talent.
Lower Unemployment Rates
We see and hear a lot of information that focuses on the high national unemployment rate (9.1% as of July, 2011) and the high unemployment in some states and cities. (12.9% for the state of Nevada, 30.8% in El Centro, California).
The facts are that these numbers vary considerably between locations, and that unemployment in your location may actually be on a downward trend. The United States Department of Labor – Bureau of Labor Statistics reports that unemployment rates decreased between July, 2010 and July, 2011 in 257 of the 372 metropolitan areas it regularly surveys.
The chart below shows the 5 states with the lowest unemployment rates as of July, 2011. An unemployment rate of 4% or under is generally considered full employment.
| State | Unemployment Rate as of 7/11 |
| North Dakota | 3.3% |
| Nebraska | 4.1% |
| South Dakota | 4.7% |
| New Hampshire | 5.2% |
| Oklahoma | 5.5% |
Economists and employer polling firms predict that up to 85% of people currently employed are “watching and waiting” for a better job opportunity. As the economy improves, the potential impact on employers is significant.
So as 2012 approaches, it’s time to do some compensation planning. If you’re unsure where to start, begin by looking at how your salaries compare to your competitors and how your compensation expenditures compare with averages. Your state’s Department of Labor may publicize valuable wage and employment data – make sure that you take advantage of the information available to you And perhaps 2012 is the year to begin thinking about adding a new bonus or incentive plan or enhancing an existing plan that isn’t working so well any more. Taking these steps now can benefit your organization and your employees not just next year but in the years beyond.
