Hay Group finds employers planning 3 percent salary hikes in 2011

For those who’ve had enough discussion about stratospheric executive pay packages, here are some scraps for the rest of us.

Employers are planning salary increases of about 3 percent for 2011, up from 2 percent in 2010, according to results of a new survey of more than 300 organizations released Tuesday by the Hay Group, a Philadelphia-based consulting firm.

However, that pales next to the 4.5 percent to 5.0 percent increases in base salaries that were common during the early 2000s, according to Hay’s research. If you assume inflation is running at about 2 percent, a 3 percent salary bump results in a real gain of only 1 percent.

Still, something is better than nothing, and no increase is exactly what many people got in 2008 in the teeth of the recession. Fortunately, pay freezes tend to be one-year measures, according to Tom McMullen, North American Reward Practice Leader who works out of Hay’s Chicago office.

Besides salary freezes, many employers who’d switched into survival mode in the recession suspended matching payments to 401(k) plans, and bonus plans didn’t pay out very well, if at all, because of poor financial performance.

Back then, “if you still had a job, that was pretty good,” McMullen said.

That’s somewhat true today, but workers who’ve been doing more for less for months on end may begin to jump to competitors or into other fields if they don’t start seeing their paycheck begin to fatten.

“People are taking a hit in their pocketbooks,” McMullen said.

That’s been true for the last three years. In November 2008, the Hay Group noted that 65 percent of the organizations it surveyed were making changes to their base-salary budgets for 2009. Of those, 58 percent planned to cut, while 24 percent were considering a freeze.

In July 2009, Hay found expectations similar to the current survey with a 3 percent base salary increase for 2010. However, a follow-up study last December determined that employers had scaled back that planned increase to 2.5 percent - the lowest in the last decade. (The actual increase employees received in 2009 wound up at 1.9 percent.)

Still, just because salary increases are anemic doesn’t mean overall compensation can’t rise. McMullen noted that more U.S. companies have been broadening the use of incentive programs.

Hay Group, which has conducted its salary survey for 30 years, estimates 90 percent of for-profit companies have implemented variable-pay programs to varying degrees.

Should we be happy or outraged at the shift? Lawmakers and others have spent the last two years blaming the financial meltdown, in part, on incentive pay that induced bankers and others to take excessive risks.

But McMullen defends the trend. “There is a message that is getting lost about the power of incentive pay,” he said. “Pay systems do motivate.”