Salary Increases are Down, But That’s Not Driving Employee Engagement

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Jul 14, 2010

It was only a couple of weeks ago that the Hay Group weighed in with their forecast on salary increases for 2011 – 3 percent, and slightly better than increases this year.

Now The Conference Board has issued their salary predictions for 2011 and, believe it or not, they make the Hay Group forecast of a 3 percent increase in 2011 look generous.

“For the second straight year, the median salary increase budget is 2.5 percent,” The Conference Board said in a press release announcing its latest salary survey. “Projections for 2011 show a modest increase to 3 percent.”

The Conference Board, which has been around since 1916, describes itself as a “global, independent business membership and research association working in the public interest.” It’s also a VERY reputable organization, so its forecasts on business topics are always well-regarded.

Still, its analysis and commentary of the 2011 salary increase study sounds remarkably like what the Hay Group said two weeks ago.

“This less-than-robust increase is an indication that the economic recovery has not yet picked up enough strength to significantly raise salary budgets to a level consistent with a healthy economy,” says Christopher Woock, Researcher, Human Capital, at The Conference Board. “But the news is not all grim. There appears to be little risk of inflation eroding the real value of the increase.”

Well yes, the lack of inflation eroding the increase is a silver lining (although a fairly dim one), but that’s about the extent of the good news you’ll get out of this study.

If you really want some good news, however slight, about salaries and pay increases, you’ll need to go to another study to get that.

WorldatWork, the “global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce,” just released the results of an employee engagement survey they did along with the Hay Group and Loyola University Chicago. What they found was “that base pay and benefits had a weaker relationship with the organization’s ability to foster high levels of employee engagement and motivation compared to incentives, intangible rewards and quality of leadership.”

“It is the non-financial rewards – as opposed to the financial rewards – that are viewed as having more impact on employee engagement,” said Tom McMullen, North American Practice Leader for Hay Group, in a press release about the study. “Quality of work, career development, organization climate and work-life balance all have a greater perceived impact on employee engagement than financial rewards such as base salaries, benefits and monetary incentives.”

So, perhaps the good news out of all of this is that yes, salary increases are going to be pretty small next year, but maybe that doesn’t matter all that much since non-financial rewards seem to have a much greater impact on employee engagement overall.

Maybe that’s not what you and your employees want to hear, but during this stop-and-start economic recovery, that may be as good as it gets for a while.