Money forecast to be budgeted for coming-year salary increases has hit a 25-year low, a key survey indicates.
The Conference Board Annual Salary Increase Budgets Survey, released a week before Labor Day, reports the lowest yearly forecast for company salary budgets since the survey began 25 years ago.
The 2010 median forecast salary-increase budget is 3.0% in all employee categories, down a half percent from the previous year. (Salary-increase budgets refer specifically to the pool of money that an organization dedicates to salary increases for the coming year. Generally, it is represented as a percentage of current payroll.)
Along with The Conference Board’s labor-market indicators, “this historic low suggests that, entering this holiday weekend, workers shouldn’t be looking forward to much improvement in the labor market,” says Linda Barrington, managing director of human capital at The Conference Board.
Changing market conditions throughout 2009 pushed companies to adjust downward their salary increases as the economy worsened. Comparing what companies originally forecast for their 2009 salary-increase budgets and where they report actually expecting to finish the year is revealing.
The Conference Board survey reports a full percentage-point drop in the medians of the 2009 salary-increase budgets in all employee categories except executive, from 3.5% to 2.5%. But it was the executive category that took the biggest hit – down two full percentage points (from 3.5% to 1.5%).
Across industry categories, Insurance reports the highest 2010 forecasts for salary-increase budgets in all employee categories, 3.5%, while Communications reports the lowest in all employee categories—2.5%. A median forecast of 2.5% is also reported for the salary-increase budgets for executives in the Energy/Agriculture industry.
While the median forecast salary-increase budget is low, the typical employer is still budgeting for salary increases ahead of inflation in 2010. Suppressed, in part, by slack in production capacity, The Conference Board projects the inflation rate to be 2% this coming year.
The information for this report was gathered from 291 companies surveyed between April 7 and April 30.
Definition: Salary increase budgets refer specifically to the pool of money that an organization dedicates to salary increases for the coming year. It is represented as a percentage of current payroll generally; the salary increase budget is calculated using a predetermined total percentage of base pay (excluding overtime, bonuses, etc.). The budget is used for awarding merit or performance increases to individual employees, as well as for pay adjustments such as promotional increases. Salary increase budgets can also include scheduled “step” increases or salary increases that have been pre-determined via individual contracts or collective-bargaining agreements.
Source: U.S. Salary Increase Budgets for 2010 Research Report 1451, The Conference Board