Salary Budgeting

Pay increase budgets at U.S. employers have improved slightly, up to 3.0 percent in 2014 from 2.9 percent in 2013 according to the 41st annual World-at-Work 2014-2015 Salary Budget Survey. Forecasts show that the average raise in base pay for 2015 in the United States is projected to be 3.1 percent. This continues a trend of mildly increasing budgets since the 2009 recession when the average salary budget increase reached an all-time low of 2.2 percent (mean). Last year, respondents projected that the 2014 average total salary budget increase across all organizations, employee categories, regions and industries in the United States would reach 3.1 percent (median: 3.0 percent), but actual numbers fell just short.

Organizations continue to converge on budget amounts between 2 percent and 4 percent, with 85 percent to 90 percent of all organizations landing there, depending on employee category. The percentage of organizations not awarding increases has dropped to 2 percent to 5 percent, fairly close to historical levels.

Even though the size of all salary increase budgets, including merit budgets, remains on the conservative side, there is still good evidence of differentiation of awards.  Organizations know that in order to retain top talent, they need to reward and motivate these important employees. They are doing so by differentiating salary increases and increasing the use of bonus programs.

Looking at employee performance in 2013, organizations averaged a 2.7 percent merit increase for mid-level performers (median: 2.7 percent) and a 4.0 percent payout for top performers (median: 4.0 percent). Low performers averaged a 0.6 percent increase in 2013, although the median payout was zero. Pay increases for 2014 performance are expected to remain at 2.7 percent for middle performers (median: 2.8 percent), and climb to 4.1 percent (median: 4.0 percent) for high performers.

Increased use of Bonus Programs: The 2014 data shows that 74 percent of respondents are now utilizing market-based pay increases. Similarly, sign-on/hiring bonuses, spot bonuses, retention bonuses and project completion bonuses are all up in usage over past years, suggesting that organizations are beginning to pay more attention to retention of employees as the economy continues to improve.

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