Compensation Predictions for 2013

Prior to 2009, salary budgets were keeping steady at about a 3.5 to 4.5 percent increase per year but since the economic downturn of 2008, increases in 2009 went as low as 2.2 percent, more than 1 percentage point below any number ever seen during the 39 years of the WorldatWork Salary Survey.  Although we are still not seeing the salary budget increases from before the recession, we have seen a gradual increase from 2.5 percent in 2010 and 2.8 percent in both 2011 and 2012.  So are we going to stay steady at 2.8 percent or are we going to see that number go up in 2013?

According to survey results from World@Work, Aon Hewitt, and Hay Group, base pay is expected to go up to 3.0 percent in 2013 (Mercer projects it to increase to 2.9 percent).

"It is unlikely that salary increases will reach pre-recession levels of 4 percent or higher any time soon," said Ken Abosch, compensation marketing, strategy and development leader at Aon Hewitt. "Companies are more impacted by the global economy than ever before, as a result organizations continue to be conservative with their spending, but we anticipate that attitude will remain even after the economy rights itself—holding down spending on base pay is the new normal."

So experts are predicting another year of gradual increases in base pay but what about variable pay and pay for performance?  The trend towards offering variable pay or performance based awards is expected to continue through 2013. In 2012, companies spent 12 percent on variable pay and that number is expected to rise to 12.1 percent in 2013. 

"Organizations are being more strategic with the limited compensation dollars they have to spend," explained Abosch. "They are spending less on base pay increases for all workers, and instead, are rewarding high performing workers with larger performance-based awards. This allows them to better control spending, while still providing incentives for their best employees."

Pay for performance can motivate employees and can keep costs down by rewarding employees based on their contribution to the organization.  Pay for performance and variable pay remains a very predominate practice among employers and according to WorldatWork Practice Leader Kerry Chou, the difference in increase between average performers and top performers have remained consistent over the years at a difference of about 150 percent.  Although base salary is expected to increase, 2013 seems to be the year that many companies move closer to a pay for performance or variable pay strategy. 

Are you considering offering a variable pay/pay for performance program in 2013?  Please tell us why or why not. 

References
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Performance-Based-Awards-Spending.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/2013-Salary-Forecasts-Unanimity.aspx
http://www.worldatwork.org/waw/adimComment?id=64583&from=ww_content_341