Market Information Helps With Tough Salary Planning Decisions.

In a recent blog, we talked about taking a broader perspective when planning salary increases for 2011.  We were also waiting for better forecasts for 2011.  More comprehensive reports are now available and suggest the following:

  • We are seeing a clear increase in the percent of employers and banks granting pay raises.  While two-thirds of employers gave increases in 2009, nearly 85% gave increases in 2010.  And we expect this percentage to increase for 2011.
  • U.S. employers report they are budgeting  average raises of 3.0% in 2011, as are banks and other financial institutions.
  • The middle 50% of employers report  2011 salary increase budgets between 2.6% and 3.5%.
    • Again, financial institutions are very similar – ranging from 2.5% to 3.2%.
  • History shows some fluctuation between forecast and actual increases among general industry as well as financial institutions:


2008 Actual

2009 Forecast

2009 Actual

2010 Forecast

2010 Actual

2011 Forecast















If this fluctuation between projected and actual continues, banks may give less than 3% in actual raises in 2011.

In addition to the broader questions we raised in our previous blog, budgeting for pay raises eventually comes down to practical questions:

  • What’s your best estimate of what the competitive market will do?
  • How long has it been since your last round of raises?
  • What can you afford to do, considering your expected financial performance?
  • And as we pointed out in an earlier blog, how do your overall salary levels stack up against current market salaries?  If you haven’t checked the market lately (perhaps because you didn’t grant raises), then you lack important information on competitiveness and whether (a) you are still paying competitive rates or (b) a gap has opened between your organization’s salary levels and the market.

We have also seen a couple of other techniques to mitigate the cost of salary raises:

  • Postpone the effective date of raises until later in the year.  Granting raises on July 1 rather than December 1 saves half the expense for the calendar year.
  • Grant merit pay in a lump-sum to employees high in their salary ranges but performing at a superior level.   While the lump-sum payment is a current expense, it does not increase the employee’s future pay rate.

These are challenging times for compensation planning.  If we can be of help, please don’t hesitate to contact the firm at (919) 644-6962 or me direct at (404) 435-6993.

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