Pay raises, bonuses on the horizon

Yesterday’s post focused on the tough times employees still face — working more, spending less, but still struggling financially and reporting increased stress — despite the that economic indicators that are beginning to slowly climb upward.

Today, there seems to be better news in store for them other than to just grin and bear it. Two separate consultant surveys show that organizations plan to adjust their compensation practices for next year. That’s consultant speak for they’re gonna start giving out raises and bonuses again.

According to Mercer’s 2010/2011 U.S. Compensation Planning Survey, more than 98% of companies plan to award base pay increases in 2011, with just 2% of companies are planning across-the-board salary freezes next year compared to 13% in 2010 and 31% in 2009.

Of the employers projecting to grant base pay increases, the average increase is expected to be 2.9% in 2011, up from an actual 2.7% in 2010, but still down from 2009 levels (3.2% average), Mercer reports.

However, it pays (literally) to be the best, as Mercer also finds that highest-performing employees (14% of the workforce) are expected to receive average base pay increases of 4.3% in 2010 compared to 2.6% for average performers (35% of the workforce) and 0.5% for the weakest performers (7% of the workforce).

A separate, but equally encouraging survey from Towers Watson shows employers are projecting merit increases of 2.7% for 2011, with just 5% of companies expected to freeze salaries. 

In addition, a separate TW survey reveals that companies’ average projected bonus funding for the current-year performance is 92% of target, representing an increase of 12% over the prior performance year.

"As the economy continues to emerge from the recession, the compensation environment for most companies is looking much better,” says Laura Sejen, global rewards practice leader at Towers Watson. “Companies are steadily restoring frozen pay increases and are now in an improved position financially to reward their workers with higher raises and bonuses."

I think that basically, two forces are at play here: 1. Company execs are feeling more confident that the worse of the economic downturn is over, and are thinking more about taking steps forward rather than looking upward for falling shoes; and 2. Employers, realizing that taking those steps forward will require top talent, want to invest in making sure their highest performers stay put.

What do you think? Is your company planning to increase/reinstate pay increases and/or bonuses next year? Are they in line with the levels Mercer and Towers Watson project? Share your thoughts in the comments.