One-tenth Unraveled: 2014 Salary Increase Projections – Is the Economic Tether Loosening?

As expected, the salary budget increase projections for 2013 were accurate, with the actual increases at three percent. Although this was only an increase of two-tenths percent from 2012, it was hopeful that the economy was improving. However, it was discovered that the movement was not coming from larger pay increases being awarded, but rather, the number of organizations reporting zero percent increases which was down from 33% in 2009 to 5% in 2012 according to WorldatWork’s 2012-2013 Salary Budget Survey. This is important to consider as it means that only a few organizations decided not to budget for salary increases.

“Salary budgets continue to improve, albeit slowly,” says Kerry Chou, CCP, the senior compensation practice leader for WorldatWork. He also comments that recent data “adds to the recently released jobs numbers painting an economic picture that shows the U.S. economy is not gaining much momentum.”

As indicated by WorldatWork’s 2013-2014 Salary Budget Survey, the projected increases for 2014 are a mere one-tenth percent higher, at 3.1%, than the actual reported increases in 2013. Further revealing the sluggish recovery of the economy, salary budgets are remaining below the pre-2009 recession levels. Organizations continue to report budget increases between two to four percent with very few attempts to raise budgets over four percent.

If the 2014 budget increase projections are correct, then it will be the first average increase above three percent since 2008. Although this is true of WorldatWork’s projections, there is some discrepancy between sources.
According to Mercer’s 2013/2014 U.S. Compensation Planning Survey the 2014 salary budget increases will be 2.9%, indicating only a slight rise from their 2013 projection of 2.8% and a projection of 2.7% in 2011 and 2012. Mercer also adds, in their study, that organizations are continuing to differentiate salary increases based on performance and that they are targeting individuals with critical skills for superior incentives. Catherine Hartman, one of Mercer’s principals in rewards consulting, states, “employers are clearly starting to see the value of assessing and addressing their workforce needs systematically.” Her thoughts are in line with Mercer’s study, showing that the highest-rated performers, approximately seven percent of the workforce, could expect up to a 4.5% average base pay increases in 2014.

Furthermore, the HayGroup’s research predicts that salary budget increases will neither increase or decrease from 2013, remaining at three percent for 2014. Their projection continues to be consistent with the numbers for the past three years. The HayGroup’s study also gives some further insight into industry-based salary budget increases indicating that one industry, the “oil and gas sector,” could expect increases of about four percent for 2014. This is about one percent higher than the expected increases for all other industries included in their study. As an additional point of reference, The Conference Board also claims to project a three percent increase as well.

Each source, when looked at collectively, has a common message behind their 2014 projections, that is, that the small economic recovery we have seen has not been enough to substantiate significant raises for salary budget increases. It appears that until we see some major economic growth, the salary budget increases will remain tethered around the three percent mark.