U.S. workers can expect median base salary increases of 2.8% in 2011, compared to 2.4% in 2010, while executives and skilled-trade workers can anticipate a 2.7% increase, according to the "Salary Budgets Survey" by the Hay Group.

"Relatively speaking, a forecasted median 2011 base salary increase of 2.8% is good news for employees who, over the past two years, saw the lowest salary increases in decades," says Tom McMullen, a practice leader of Hay Group’s North American unit.

The survey also "points to a positive trend in organizational staffing. We found that the number of organizations increasing their staffing levels is double that of organizations that are decreasing their staffing levels," McMullen adds.

Still, some companies struggle with designing a strategic salary budget that aligns with corporate objectives. In the survey, top performers will receive increases of 3.1%, compared to the 2.8% increase for all employees.

"Organizations have a difficult time differentiating pay increases when the pot of money gets smaller," explains McMullen.  "Couple this with the ineffectiveness of many line managers in assessing employee performance and undifferentiated pay is the outcome.  Managers have an opportunity to utilize their suite of ‘total’ reward programs – all of the financial and non-financial rewards that the organization provides – to reinforce the link back to individual and team performance."

The survey findings reflect data on employers’ projected salary budgets for 2011, actual budgets from 2010 and forecasts of labor cost reductions.  The consulting firm conducted the survey in November 2010, and it includes data from 468 employers.

"Despite the optimism in our latest data, the contraction in the U.S. economy will not be reversed overnight, and neither will the return to the 3.5% to 4.5% base salary increases employees were used to receiving for much of the last decade," McMullen says. "Along with modest base salary increases, we will likely see a continued emphasis on variable pay programs, both incentives and bonuses, as organizations emerge from the recession. Organizations are willing to pay for results, but only if they get those results," he adds.

The survey results also include the percentage of organizations using or considering the following labor cost reduction actions: pay freezes (18%), reduced retirement benefits (17 %), other reduced benefits (15%), decreasing staffing levels (10%), job sharing (9%), furloughs (7%), reduced working hours (5%) and salary cuts (4%).

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