The Gradual Ascent: Salary Increases Tethered by the Economy

In 2003, Americans believed that salary budget increases had hit an all-time low. At 3.4 to 3.6 percent, it was the first time in decades that increases had dropped below 4 percent. 13 percent of employees froze salaries in 2004 compared to just 6 percent in 2001.

Again, in 2004, to the despair of many employees, increases remained around 3.4 to 3.6 percent and in many cases, salaries continued to remain stagnant. For the next four years, increases lingered at the same 3.4 to 3.6 percent, finally rising just two-tenths to an average of 3.8 percent in 2008.

However, “history repeats itself” and after the slight rise in increases in 2008, we were struck with the real all-time low in 2009. With the economic “crash,” history did repeat itself, with salary increases dropping to an average of 2.2 percent. The year 2009 saw the lowest salary increases and largest percentage of “across-the-board” salary freezes in over 35 years. According to WorldatWork’s annual salary budget increase survey, 43 percent of employers froze all employee salaries in 2009.

Optimistically, in 2010, we saw increases begin to rise again, up to an average of 2.7 percent, causing fewer employers to freeze salaries than in 2009. As increases have risen to 3 percent in 2011, we see the economy tentatively and sluggishly beginning to recover from 2009. However, according to WorldatWork’s 2011-2012 Salary Budget Increase Survey, increases are projected to be right around 3 percent again in 2012.

Although increases are not projected to actually increase in 2012, we are seeing a drastic change in the amount of salary freezes projected as compared to 2009. Only about 3 percent of employers are planning to have comprehensive salary freezes for 2012.

With less freezes, employers are putting more weight than ever on performance in the upcoming year, with WorldatWork reporting different salary increase percentages for low, middle, and high performers. In the upcoming year, low performers can expect around a 0.7 percent increase in salary with middle performers receiving around 2.7 percent and higher performers receiving around a 4 percent salary increase.

However, while it will hold more weight in 2012, it should also be noted that increases based on merit have continued to be the most common type of pay increase throughout recent history.

When it comes to the continuing hope of increases actually increasing, WorldatWork described their 2011-2012 Salary Budget Increase Survey with the following analogy:

“Envision a hot air balloon taking flight. As hot air releases into the fabric, the balloon rises. But if still tethered, it can only go so high.”

With salary increases projected to be up just three-tenths from 2010, with no increase from 2011, it appears that we are in for a slow journey toward pre-2009 increases.