A stronger U.S. economy and a growing demand for employees are being joined by another trend according to the latest survey from Mercer. Pay raises are getting larger, if only modestly.
Mercer, a subsidiary of Marsh & McClennan Companies (MMC), surveyed more than 1,500 organizations for its 2014/2015 U.S. Compensation Planning Survey and found that the 2014 base salary increase budget for all U.S. employees is 2.9% with 98% of all organizations planning to award salary increases. Mercer noted that 85% of companies that reported salary freezes in 2013 will be offering salary increases this year.
For 2015, some 99% of all organizations surveyed plan to provide increases averaging 3%. Less than 3% of all organizations expect to impose a salary freeze in 2014 and less than 1% expect a salary freeze in 2015.
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The group most affected by salary freezes has been executives. While 6.5% of all employees were subject to salary freezes in 2013, 8.3% of executives got no pay raises last year. And with 2.5% of all employees subjected to frozen salaries in 2014, some 4% of executives were excluded from pay hikes.
The largest percentage pay increases in both 2014 and 2015 will come in the energy sector, where salaries are expected to rise by 3.5% in each year. Non-financial services workers will see below average increases in both 2014 and 2015.
Salary increases due to promotions are budgeted separately at 36% of the companies surveyed, and among these companies the typical promotion increase is 7%. The smallest promotion increases are made among office/clerical/technician employees at around 6.4% and the largest promotion increases average 7.5% among executive employees.
Employees at publicly traded companies are more likely to receive incentive payments than employees at other types of organizations and the incentive awards are typically larger, especially for executives. The target percentage incentive award for executives at publicly traded firms is 47% of base salary based on 367 survey respondents. At privately held firms the target percentage of base salary is 38% and at non-profits the target is 25% for executives. For non-professional staff the target percentage is 5% of base salary, but the number of firms that offer incentive awards to these employees is considerably lower than the number offering incentives to professional, sales, and executive employees.
Among firms using a five-level performance rating system, some 8% of employees will receive the highest (“5”) performance rating and an average salary increase of 4.8% in both 2014 and 2015 according to the Mercer survey. Another 28% of employees will get a performance rating of “4” and a salary increase averaging 3.7%. Some 57% of all employees will receive a rating of “3” and can expect a pay raise of 2.6% in 2014 and 2.7% in 2015.
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Mercer also asked which jobs are the most difficult to recruit for and which employees are the most difficult to retain. The top categories for both recruitment and retention are the same and ranked in the same order: first are IT professionals followed by engineering professionals and then sales professionals.