Another Sure Sign You’ll Be Giving Out 3% Raises Next Year

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Last week, WorldatWork weighed in with their forecast for salary increases in 2013. They said they expected them to be 3 percent, again.

WorldatWork is always a highly reliable source of salary information, so you can pretty much take their annual forecast to the bank. But just in case you are the kind of person who always wants a second opinion, here comes another 2013 salary forecast, this time from the also-reliable global management consultants at Hay Group.

Guess what? Their research says that raises next year will only be 3 percent, too.

A steady 3% hike across most industries

According to Hay Group’s research, “median 3.0 percent pay increases are being reported for executives, middle management, supervisory and clerical positions. The 3.0 percent increase holds fairly steady across most industries, except the oil and gas and luxury retail sectors, which report 3.3 percent and 3.5 percent median increases, respectively.”

Clearly, it’s good to be working in the oil and gas or luxury retail sectors, but even a 3.3-3.5 percent increase in those sectors can be considered fairly modest. And in case you are wondering why salary increases are continuing to be so restrained, well, Hay Group’s analysis tells you what you probably already know — it’s all about the economy.

“With the economy continuing to grow slowly, it is not surprising that salary increases have followed suit,” said Jeff Blair, Hay Group’s U.S. Productized Services Leader, in a press release about the 2013 salary forecast survey. “Relatively low annual salary increase budgets are limiting the financial rewards available to employers. As a result, organizations are increasingly focused on improving employee engagement and creating a positive work climate for employees.”

Non-financial rewards growing in importance

Tom McMullen, Hay Group’s North American Reward Practice Leader, added this:

Sectors with increases above the general industry median often have more optimistic business performance outlooks. Some sectors rebounded more quickly and have higher margins than other industries, which may explain why projected base salary increases are higher. Moreover, in most industries we see organizations seeking to remain competitive by placing greater emphasis on variable pay programs, career development opportunities, meaningful job designs and non-financial recognition programs.

Organizations are devoting more time and energy to better understanding what employees truly value in their reward package and modifying their programs to reflect those preferences. Quite often, it is the lack of attention to some of the non-financial rewards that drive good employees out of organizations, so this can go a long way towards improving employee engagement and retention.”

Yes, McMullen is absolutely right. In a world of 3 percent raises, non-financial rewards and incentives become a much bigger deal to help keep employees productive, motivated and happy. Ignore them at your peril.

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No big increases coming anytime soon

Hay Group’s 2013 wage forecast results are based on the latest data available from Hay Group’s U.S. database, provided by 350 U.S. organizations from March through June 2012. This is Hay Group’s 33rd year of conducting the survey. Typical respondents to the survey include compensation professionals in the HR departments of small to large size U.S. organizations across a wide range of industries. Hay Group’s U.S. database represents compensation practices for almost 2,900 companies and over 6.7 million employees.

I had a number of TLNT readers ask about 2013 salary surveys several months ago, and as I told them then, the first ones usually come out in July.

These early forecasts from WorldatWork and Hay Group both make one thing very clear: employees shouldn’t expect any big bump next year to help get them back on track to where they were pre-recession. Yes, 3 percent raises are better than nothing, but they are a sign of our economic times, and I suspect, what will pass for the “new” normal until we get more focus and effort on job growth and reducing business regulations coming out of Washington.

Sadly, I wouldn’t hold my breath for that to happen anytime soon.

John Hollon is managing editor of Fuel50, an AI Opportunity Marketplace solution that delivers internal talent mobility and workforce reskilling. He's also the former founding editor of TLNT and a frequent contributor to ERE and the Fistful of Talent blog.