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Towers Watson Study: Moderate Pay Raises on Tap for U.S. Employees

Posted on 23 Aug 2011

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Reflecting uncertain economic conditions and a conservative cost-management environment, employers are projecting moderate pay raises for employees next year. Employers do expect to fully fund their annual bonuses for workers this year, as corporate profits have increased, according to new survey data by global professional services company Towers Watson.

A survey of 773 U.S. companies conducted by Towers Watson Data Services found that companies are planning pay increases that will average 2.8% in 2012 for their salaried nonexecutive employees. This represents a moderate increase from the average 2.6% raise workers are receiving this year and 2.6% they received in 2010. Similar raises for 2012 are planned for executives and nonexempt employees.

“Until the economy shows some solid and consistent improvement, most companies are keeping their salary budgets relatively tight,” said Laura Sejen, Rewards Global Practice Leader at Towers Watson. “At the same time, companies also recognize the need to reward their top performers or risk losing them to competitors and, as a result, continue to differentiate pay raises based on individual performance.”

According to the survey, workers who receive the highest performance ratings will be in store for median salary increases of 4.5% this year, which is 80% more than workers with average ratings will receive (2.5%). Workers with below-average performance ratings will receive median merit increases of 1.4%.

Employers Expect to Fully Fund Annual Bonuses

A separate survey of 316 North American companies conducted by Towers Watson found that companies’ average projected bonus funding for current-year performance is 101% of target, marking the second consecutive year that companies are able to fully fund their annual bonuses for workers. Companies funded annual bonuses in 2010 at 111% of target.

“Despite the recent economic turmoil, many companies are experiencing stronger profits and higher revenues this year. Since funding of annual bonus pools is typically based on these financial measures, companies are anticipating being well positioned to fund their annual bonus pools at target or better at year-end,” said Sejen.

About the Surveys

The Towers Watson North American Talent Management and Rewards Survey was conducted in May and June of 2011 and includes responses from 316 companies from the United States and Canada. The Towers Watson Data Services Salary Budget Survey was conducted in June and July of 2011 and includes responses from 773 companies representing a cross section of industries. The Towers Watson Data Services Salary Budget Survey Report provides data on actual salary budget increase percentages for the past and current year, along with projected increases for next year. Reports for both surveys will be released in September.