Writing an article on 2014 compensation trends in the midst
of a government shutdown and its potential devastating impact on the economy is
risky. The possibility of slipping into another recession in early 2014 is real,
which would alter all current projections dramatically. However, organizations cannot face the coming
year “on hold.” As such, we consider the
future with a cautious eye to the news.
In planning for 2014, many data sources are available. To facilitate our readers’ 2014 strategy
development, the following is an executive summary of research, reprinted with
permission, conducted by Diane Lustenader, SPHR of Lake Associates, Inc.
2013
Actual Data
US
Bureau of Labor Statistics reports actual wage increases over prior 12 months
of +2.5%; Surveys report actual 2013 merit increases averaged 2.8-2.9%, all
industries. Inflation YTD = 1.5% so real
effect of wages for most employees = +1.0%; +0.7% for hourly workers. Average structure increase in 2013 was + 2.0%
based on review of surveys. Merit
differentiation in 2013 (raises based on performance) ranged from 0% to
9.0%. The typical differentiation for
top performers compared to average performers is a factor of 150% - 200% (i.e.
if average raise = 2.9%, top performer average raise = 4.35%-5.8%). The use of variable pay programs continues to
trend upward as a tool in talent acquisition and retention.
2014
Merit Increase Average Forecasts
All Employee Groups, All
Industries (merit
+ non-promotional increases) = 3.0%
Projections by Employee
Classification -
Production = 2.92%; Office, Clerical + Technical = 2.93%; Exempt = 2.96%;
Management + Executives = 3.08%
Merit Differentiation for performance forecast from 0% to 4.6%,
similar to 2013 forecast; note actual 2013 data trended higher for top
performers
Hot
Industries 2014 – Oil
& Gas 4.1%, Energy 3.5%, Entertainment 3.4%
Hot Jobs
2014 – medical, information technology
Lagging Industries 2014 – Not-for-Profit 2.4-2.8%, Public
Administration 2.6%; Transportation & Warehousing 2.6%, Education 2.5%
2014
Promotional Pool Budget =
1.0-1.3%; average promotional raise forecast = +8.0%
2014
Salary Structure Adjustment = 2.1%
2 years, 2013 + 2014 combo adjustment = 4.1%
2013
Competitive Positioning – Most
surveys predict that 2014 will be a year of significant flight risk for all
employees, especially for top talent.
Approximately 86% of companies target the 50th percentile
(P50) of the market for the competitive midpoint of their grades and
ranges. For officers/executives that
number is 76% with 11% targeting the 75th percentile (P75). Less than 5% of companies do not have a
competitive positioning philosophy.
2014 CPI
Forecast = +1.4%
Unemployment
Forecast = 6.8%
(much speculation abounds re. impact of government shutdown and debt ceiling
debate on this number)
Let’s put this data into perspective. The following tables are from the Congressional Budget Office, on budget surpluses
and deficits since the year 2000, and the Consumer
Price Index:
Table
1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2018
|
|||||||||
(in
millions of dollars)
|
|||||||||
Year
|
Total
|
On-Budget
|
Off-Budget
|
||||||
Receipts
|
Outlays
|
Surplus
or Deficit (–)
|
Receipts
|
Outlays
|
Surplus
or Deficit (–)
|
Receipts
|
Outlays
|
Surplus
or Deficit (–)
|
|
2000
|
2,025,191
|
1,788,950
|
236,241
|
1,544,607
|
1,458,185
|
86,422
|
480,584
|
330,765
|
149,819
|
2001
|
1,991,082
|
1,862,846
|
128,236
|
1,483,563
|
1,516,008
|
-32,445
|
507,519
|
346,838
|
160,681
|
2002
|
1,853,136
|
2,010,894
|
-157,758
|
1,337,815
|
1,655,232
|
-317,417
|
515,321
|
355,662
|
159,659
|
2003
|
1,782,314
|
2,159,899
|
-377,585
|
1,258,472
|
1,796,890
|
-538,418
|
523,842
|
363,009
|
160,833
|
2004
|
1,880,114
|
2,292,841
|
-412,727
|
1,345,369
|
1,913,330
|
-567,961
|
534,745
|
379,511
|
155,234
|
2005
|
2,153,611
|
2,471,957
|
-318,346
|
1,576,135
|
2,069,746
|
-493,611
|
577,476
|
402,211
|
175,265
|
2006
|
2,406,869
|
2,655,050
|
-248,181
|
1,798,487
|
2,232,981
|
-434,494
|
608,382
|
422,069
|
186,313
|
2007
|
2,567,985
|
2,728,686
|
-160,701
|
1,932,896
|
2,275,049
|
-342,153
|
635,089
|
453,637
|
181,452
|
2008
|
2,523,991
|
2,982,544
|
-458,553
|
1,865,945
|
2,507,793
|
-641,848
|
658,046
|
474,751
|
183,295
|
2009
|
2,104,989
|
3,517,677
|
-1,412,688
|
1,450,980
|
3,000,661
|
-1,549,681
|
654,009
|
517,016
|
136,993
|
2010
|
2,162,706
|
3,457,079
|
-1,294,373
|
1,531,019
|
2,902,397
|
-1,371,378
|
631,687
|
554,682
|
77,005
|
2011
|
2,303,466
|
3,603,059
|
-1,299,593
|
1,737,678
|
3,104,453
|
-1,366,775
|
565,788
|
498,606
|
67,182
|
2012
|
2,450,164
|
3,537,127
|
-1,086,963
|
1,880,663
|
3,029,539
|
-1,148,876
|
569,501
|
507,588
|
61,913
|
2013 estimate
|
2,712,045
|
3,684,947
|
-972,902
|
2,038,558
|
3,044,916
|
-1,006,358
|
673,487
|
640,031
|
33,456
|
2014 estimate
|
3,033,618
|
3,777,807
|
-744,189
|
2,294,478
|
3,062,692
|
-768,214
|
739,140
|
715,115
|
24,025
|
2015 estimate
|
3,331,685
|
3,908,157
|
-576,472
|
2,553,429
|
3,137,025
|
-583,596
|
778,256
|
771,132
|
7,124
|
2016 estimate
|
3,561,451
|
4,089,836
|
-528,385
|
2,735,891
|
3,260,397
|
-524,506
|
825,560
|
829,439
|
-3,879
|
2017 estimate
|
3,760,542
|
4,247,448
|
-486,906
|
2,891,827
|
3,370,159
|
-478,332
|
868,715
|
877,289
|
-8,574
|
2018 estimate
|
3,973,974
|
4,449,240
|
-475,266
|
3,056,516
|
3,516,155
|
-459,639
|
917,458
|
933,085
|
-15,627
|
The national deficit will continue to grow, placing more
pressure on the need to increase government revenues. Yet unemployment will continue to hover
around 7%, meaning less tax revenue for the government to count on. As we have heard in the news the past few
weeks, “something has got to give.”
Inflation is holding steady at 2% during 2013 and is predicted to remain
as such, or even drop in 2014. The
earlier fears of “hyper-inflation” in 2014 have dissipated. This leads us to a
reality check against the data provided by the major consulting firms and
compiled by Lake Associates. Based on
discussions with Astron Solutions clients across the country, from differing
industry segments, the following can be said as we begin planning for 2014:
- · Clients are focusing on a range of 2.8% - 3.2% in their 2014 compensation budget planning, with an average of 3%. This includes all adjustments to compensation, such as general increases, as well as merit, promotional, and market adjustments.
- · Clients are taking a hard look at their centralized compensation systems and moving towards more decentralized models. Such models allow them to make budget decisions based on families of jobs, and prioritize based on the mission critical nature of the positions. This can result in some positions having pay being frozen while others receive adjustments. This also means increased pressure on developing alternative rewards programs for positions not included in the adjustment.
- · Clients are starting to take a hard line in holding pay to the established maximum of the pay range with no adjustment, even a flat dollar amount, until the employee’s pay is below the maximum. This requires establishing programs to better recognize the long-term employees beyond just a pin or recognition certificate, as this population will be most impacted.
- · Clients are also aggressively establishing career progression programs that allow them to reduce the actual start rate below the market going rate. The organizations then shift these dollars to fund training programs and recognition rewards for those who have mastered their job and exhibit high levels of competency and the ability to take on highly complex job tasks.
Compensation planning for the
coming year is always a delicate balance. With the current economic
uncertainty, however, formulating a strategy is difficult. Employers effective at attracting and
retaining key talent, however, will utilize multiple approaches that enable
them to provide fiscally conservative total rewards packages while still
engaging the human capital that drives the organization forward.
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