Salary Increase Budgets are Low and Going Even Lower

By November 15, 2010 September 16th, 2018 Best Practices, Compensation, Finance, Human Resources, Recruiting

Salary increase budgets and are near to historical lows, and are likely going even lower, due to the weak economic “recovery.”  Growth in 2010 has been so tepid that unemployment has barely budged and employers have started to cut back their budget plans for 2011 (and even for 2010, if they haven’t fully implemented them yet).
Early indications for 2010 salary increase or “merit” budgets were in the 3.0% vicinity or bit lower, but after a weak 2nd and 3rd quarter, it’s looking lower than that, and at very low numbers historically.  The lowest annual salary increases ever recorded (since good records have been maintained) was in 2009, at about 1.5%, depending on who you ask.
Meanwhile 2011 budgets estimates are starting to head south, well before the year even begins, because nothing on the horizon indicates a quickening of the economic recovery or a firming of the labor market.
Below is data from several recently published surveys concerning merit and salary structure increases projected for 2010 and 2011.  Data from the Hewitt study (“exempt updated”) is actual (not projected) data for 2010 that was just released in the past few weeks, showing the downward trend we have been predicting for some time.

Survey/Group 2010 Salary Budget
Merit Increase
2010 Salary
Structure Increase
2011 Salary Budget
Merit Increase
2011 Salary
Stucture Increase
Exempt 2.8%/3.0% 1.8%/2.0% 2.8%/3.0% 2.0%/2.0%
———— ————– ————- ————- ————-
Hewitt Average
Exempt Updated 2.4% 2.9%
Exempt 2.8% 2.4% 3.0% 2.4%
———— ————— ————- ————– ————
Hay Group Meridan
Exempt-overall 2.5% 2.5% 3.0% 2.5%
————— ————— ————— ————— ————-
Culpepper Avg,excl. 0%
Exempt-tech 2.9% 2.6% NA NA

Overall, we believe that 2010 will end up with pay increases in the 2.5% range.  We estimate that 2011 budgets will drop from the recently-projected 3.0% range, down to around 2.7% (+/-), depending on how the economy does in the next few quarters.
We expect to see some industry variation from the overall trends though, both in 2010 and  2011.  Some industries doing better than most, and they will likely have higher budgets than many other industries. Industries doing better than average include health care, technology, biotechnology, consulting, and some capital equipment sectors, etc.
We wish we could be more upbeat on the economy right now, but we feel it’s better to be honest, than just plain wrong.  In future posts, we will discuss how employers can address the “tiny” merit budget issue, which tends to have a negative impact on the workforce (despite the economic realities), and especially on  top performers – the folks  employers want to keep the most.
To learn more about compensation and the Strategic Pay Series, visit their Blog.

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