3% Base Salary Increase Expected to Continue in 2016

–Flat Wage Increases are the “New Normal” as Employers Adopt Conservative Attitude Toward Pay–

PHILADELPHIA–(BUSINESS WIRE)–For the fifth year in a row, U.S. employees can expect to see a moderate 3.0% median base salary increase in 2016, according to new research released by Hay Group, the global management consulting firm. This figure is in line with actual pay increases of 3.0% reported by the companies surveyed in 2015. These projected and actual increases have remained nearly constant since the end of the recession and reflect employers’ conservative attitude toward base salary increases.

“Organizations are doing more to ensure stronger alignment between the total rewards portfolio, including non-financial rewards, and the employee value proposition”

“Employees and employers alike will need to adjust to the fact that conservative base salary increases are the new normal in the post-recession era,” said Tom McMullen, a Vice President in Hay Group’s Reward Solutions Consulting practice. “Organizations are closely focused on containing fixed costs and, as our data indicates, keeping base salary increases at a lower level is a key tool many companies are employing.”

With human capital concerns the number one issue top of mind for CEOs, the challenge in an era of cost constraints is to engage and retain talent without heavily relying on base salary as a motivating factor. “Flexibility with regard to salary is very constrained, so HR departments need to look for a variety of alternative methods to keep top talent on board. In addition to variable pay and key talent reward and recognition programs, career development and meaningful job design are critical retention mechanisms,” McMullen added. “These will be paramount to successful human capital strategies in this new environment.”

Engaging the current workforce is a top priority for many companies, but base pay is far from the only lever available to companies. “Organizations are doing more to ensure stronger alignment between the total rewards portfolio, including non-financial rewards, and the employee value proposition,” offered Mark Royal, Senior Principal within Hay Group Insight, Hay Group’s employee research division. “Improved employee diagnostics help these companies understand why employees join, stay and leave organizations and how improving the employee value proposition and shoring up gaps can foster more compelling recruitment, engagement and retention strategies.”

Performance based incentives also have an increasingly important role to play in the context of a low base salary increase environment. Both short- and long-term incentive programs can provide methods for rewarding top performers and keeping employees engaged, without the full expense of base salary increases. “Whereas many organizations in the past had short- and long-term incentive programs that were team-based, creating a rising-tide-lifts-all-boats situation, many of these programs are now being adjusted to include individual performance modifiers to better reflect each employee’s direct contributions,” said McMullen.

Reflecting the slow to moderate growing economic environment, companies are looking for game-changing innovations to push their business to the next level, and this priority is being reflected in incentive pay programs. “We’ve seen a big push among companies to factor in more innovation metrics to their reward and recognition programs,” McMullen explained. “Today’s new pay reality for employees is one where guaranteed pay growth is out, but companies remain quite willing to pay for performance—even more so if those individuals can drive business innovation.”

About the Survey

Hay Group’s forecast results are based on the latest data available from Hay Group’s U.S. database, provided by over 400 U.S. organizations from March through June 2015. Actual pay data is gathered from the same group of respondents and tabulated in July each year. This is Hay Group’s 36th year of conducting the survey. Typical survey respondents include compensation professionals in the Human Resources departments of small to large U.S. organizations across a wide range of industries. Hay Group’s U.S. database represents compensation practices for over 2,400 companies and over six million employees.