For the first time since 1980, the rate of inflation in the United States is higher than the average total salary budget increase. During the 12-month period ending April 2011 inflation, as measured by the Consumer Price Index (CPI), was 3.2 per cent. That compared to a total salary budget increase of 2.8 per cent for the same period, found the WorldatWork 2011-2012 Salary Budget Survey.
A host of factors — particularly high unemployment — are conspiring to keep salary increase budgets low, according to Don Lindner, senior compensation practice leader at WorldatWork.
“Salary budget planning does not happen in a bubble,” he said. “Labour costs, productivity, unemployment and other economic factors are important considerations for compensation professionals when making budget recommendations.”
Despite rising prices for goods and services, evident in the CPI, the demand for labour is still uneven, with the nation’s unemployment rate averaging 9.4 per cent from May 2010 to April 2011, found the survey of more than 2,400 participants. Salary budget increase trends may only see significant improvement if unemployment decreases, which would put pressure on employers to raise wages in order to stay competitive.
“Successful organizations will not pay more than necessary for any expenditure and with low risk of losing employees to other organizations, higher increases are not justified at this time,” said Lindner. “This also explains why hardly any companies are making up for past pay freezes in this year’s budget.”
Time will tell if salary budget increases will return to pre-recessionary levels but hikes may only occur if the weight shifts between the supply and demand for labour, said Alison Avalos, research manager at WorldatWork.
“Mining, quarrying, oil and gas companies are currently experiencing a shortage of skilled labour so their 2012 planned salary budgets are above average, at 4.1 per cent.”
Employees in other industries, on the other hand, can expect average pay increases of 2.9 per cent in 2012, said WorldatWork.
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