Average Salary Increases: What's On the Horizon for 2009?

Posted by Kristina Cowan

Over the last several weeks, it seems the United States has come entirely unglued--at least financially. It's enough to make any worker uneasy about job security and compensation. With all the fiscal unrest, we wonder: what can we expect for an average salary increase in 2009, in light of the sorry state of the economy?

Several reports released earlier this year, before the recent $700 billion federal bailout of banks, provide a clue as to what workers might expect in terms of an average salary increase next year. Hewitt Associates says workers can expect a 3.8 percent average salary increase next year, while a study by Mercer says employers plan to give average salary increases of 3.7 percent. Likewise, a PayScale story, "5 Salary Secrets Your Company Won't Tell You" reports that, according to the 35th annual WorldatWork Salary Budget Survey, workers can expect an average salary increase of 3.9 percent.

Behind Less-than-Stellar News of Average Salary Increases, Hope Lurks

Such stagnant projections seem little reason for celebration, especially considering that escalating costs of nearly everything (the recent nosedive of gas prices notwithstanding) will easily devour average salary increases. But Ken Abosch, leader of Hewitt's North American Compensation Consulting business, says there's reason for hope. "With the current economic climate, we would anticipate seeing lower base pay raises, smaller variable pay awards and more companies freezing wages. Our findings indicate that companies are making small corrections, but they aren't panicking—they're staying the course and remaining relatively stable compared to prior economic downturns," Abosch says.

Variable pay is another bright spot. Variable pay--such as signing bonuses, retention bonuses, and individual performance awards--is still popular among employers, despite fiscal woes, as Abosch notes. Employers, facing a growing dearth of talent as baby boomers near retirement, are relying on variable pay to attract talent and motivate their top performers, according to Hewitt. 

The Mercer findings also provide another source of promise, as a Wall Street Journal article notes. If you're a top performer, you can expect to see a higher average salary increase than your colleagues who so-so or full-on slackers. According to Mercer, highest-performing employees, or 14 percent of the workforce, can expect average salary increases of 5.6 percent in 2009 compared to 3.3 percent for average performers and 0.6 percent for the weakest performers. To some extent, this suggests you're still in the driver's seat when it comes to determining your raise--of course it depends on your industry and the overall health of your employer. So keep working hard and looking for ways to shine; your payoff just might boost your bank.

And perhaps most interesting is how resilient the American spirit has remained despite all the news and talk of money woes. According to a Pew Research Center survey, "there are no signs that the crisis has eroded people's fundamental confidence in either their own personal financial outlook or the nation's." The survey, conducted after the bailout crisis erupted, says 41 percent of the public rates its finances as excellent or good, almost identical to the 42 percent reporting this in July. Meanwhile, fewer people--57 percent--say their income is trailing the cost of living, compared to 64 percent in July.

• 5 Salary Secrets Your Company Won't Tell You (PayScale.com)
• Hewitt Study Finds Salaries Will Remain Constant Despite Faltering Economy (Hewitt Associates)
• Base pay expected to rise more slowly in 2009 than 2008, even among high-performing industries (Mercer)
• Wall Street meltdown could lower, eliminate raises next year (SunSentinel.com)
• Study Suggests Employers to Shift Bulk of Pay Raises to Top Performers (The Wall Street Journal)
• Public Worried But Not Panicked About Economy (Pew Research Center)
• The real cost of the bailout (Reuters in International Herald Tribune)

Comments

[Julie]

I have not ever had a 5.5 percent raise in my life even when the economy was better.I am an above average performer according to every employer I have ever worked for- also facing a wage freeze in 2009 and already some lost income this year.

[Arlee]

Thanks Julie for your article.
I got the email newsletter from payscale.com

Your artical has merit, In my experience more of my pay has come from incentives, and performance bonus.

1st - A comment about your article, you don't seem to generate any Canadian content. Could you? The situation in canada is much different than in the USA. WHY? Example, Health care, our nurses and doctors and dentists, are generally goverened by Government fee schedules. So pay is limited. As a result many of the health professionals go to the USA and earn 50 - 65 % more, . WHY? Because of an over inflated PRIVATE FOR PROFIT health care system. So information about trends in the USA is one thing but trends in Canada are much different.

As an Accountant, here in Alberta Canada, we have some very unique situations. For example Employers are having a very hard time to find staff. A couple of reasons. Low pay as compared to the cost of living, and lack of trust or skeptic. Why? In Canada, we have had many corporations and governemts promise jobs / pay, only for the employee to find out that very soon after that the job evaporates. Change in Governement, or the Company downsizes, or is bought out by american interest. In 75 % of the businesses in Canada that are bought out by American Companies, it results in 2 things.. Layoff of 15 % of the workforce, and also bringing in Ex Pat USA citizens to work here in Canada (replacing Canadian workers ) on temp contracts. So basically Job loyalty has gone right out the window. Self employment has risen in Canada in the last 3 years by over 75 %. People are FED up working for Corporate liars , cheets, and ownership without a concience.
In the oil and Gas sector, it has seen a rise of over 60 % in contract work. Employees becoming subcontractors. So the notion of payscale.. seems to be more focused on junior and intermediate type roles. Anyone that has a degree of high Specialization/ expertise, is now in a better position to dictate the employment terms(subcontract) as well as the dollar renumeration. So the effect , is many young people are going into the trades ( ie. welders, carpenters, electricians ) with an eye to becoming self employed. This diversion has left a serious GAP in the service industry. We are seeing non traditional hiring now. For example , coffee clerks, at a Donut shop are getting a signing bonus (1000.00) Scholarships, Retirement savings, incentive plans, free meals, and Transit paid. This is the employement package being offerred to those at the Minimum wage level. These companies are having to compete for labour against companies not in the service industry or Retail sales. (minimum wage jobs in Alberta paying 8.75 to 11.00 hour with allthese benifits.

This is against a background of Growing unemployment, Gen x, Baby boom Retiremement and estate transfers. In the overall picture, with the babyboom retiring, there is going to be a real crunch. Why are you not talking about that crunch / Shift from a CANADIAN perspective?

OH yes how about In our Oil sands, the companies had to go to Mexico and Peru to fill thier Base labourer needs. They brought in 2000. Individuals to fill the most basic labour positions.

What is the shift. Well the numbers prove out. The number of baby boomers retiring in the next 3 years (as some have kept working past 65-70 ) will be retiring at a higher level than our birth rate and our immigration rate . In the end it will be leaving a very large GAP from the Total Labour pool.

I believe the areas that will be most affected will be the retail service areas ( food service , hotel, restruant, and retail shopping.) IN retail stores here in Alberta Canada, we have allready seen one large shift. A store like Home depot, or Walmart, Cut thier Cashier staff by 60 % (surprise!) and put in Automatic Check outs. No staff, the customer scans the goods, and pays by themselves and bags by themselves. Also the number of Customer agents Sales staff in the store has also been cut by 60 % ( replaced with many Product inquiry Stations.) there are PC like stations, where you can search for an item, as well as Scan an item with an attached bar code scanner to check a price before purchasing. So.. What' my point? Larger Companies are finding way to deal/ Address this labour shortfall. A certain amount of service jobs will be lost permantley as a result of the Massive shift comming soon ( baby boomers retiring ).

Another topic I have not seen discussed, in talking about payscale adjustments. Basically is this concept, what salary is economically viable. For example we had an Heavy equipment company Called R Angus. They had to close the company why? Because the demands of the union, the wage and benifits would be more than the income they took in. So they sold out to a NON union company who were able to reduce costs and keep the staff.

The money available for Wages is most companies is a very finite number. As many companies are in a tight Gross margin operating area. ( due to Competition and Free trade )

As I see it we are in for some very interesting times, Wages in essential services, and costs for estential services like, water, power, heat, fuel are going to go up to secure stability.

Thank you for taking the time to address some regional differances. From a Canadian perspective, and also from an Alberta perspective.. I think most people are aware of the construction boom we have had with OIL SANDS developement in our Province.
Thanks for listening.

Arlee ( In Edmonton, Alberta , Canada )

[Kim Wiltberger]

While a 5% + salary increase is rare, it does happen. I once received a 25% salary increase and it wasn't even solicited. Needless to say, I flew around on a morale cloud for weeks after that one....

According to my bosses, I can expect somewhere between 4-6% increase this year along with my incentive bonus. I am satisfied with that, especially in today's uncertain economy.

I am among the fortunate ones whose job for the next 2 years anyway is stable. As a project manager, you are pretty secure in your job until the project is completed...as long as your performance is up to par, that is.

On a side note, several friends of mine have told me that they are not receiving any increase at all in 2009, or if they do, it is going to be 2-3% as a "cost of living" type of increase... for those of us receiving more than that, I guess we should be thankful and appreciative of our current situations. After all, it could be worse.

[Kim Wiltberger]

While a 5% + salary increase is rare, it does happen. I once received a 25% salary increase and it wasn't even solicited. Needless to say, I flew around on a morale cloud for weeks after that one....

According to my bosses, I can expect somewhere between 4-6% increase this year along with my incentive bonus. I am satisfied with that, especially in today's uncertain economy.

I am among the fortunate ones whose job for the next 2 years anyway is stable. As a project manager, you are pretty secure in your job until the project is completed...as long as your performance is up to par, that is.

On a side note, several friends of mine have told me that they are not receiving any increase at all in 2009, or if they do, it is going to be 2-3% as a "cost of living" type of increase... for those of us receiving more than that, I guess we should be thankful and appreciative of our current situations. After all, it could be worse.