New Hay Group research shows that planned salary increases for 2011 are at 3.0% and reflect a sustained uptick relative to the low point in March 2009, when salary increases were at a low point of 2.0% for most employee groups and 0% for executives. After factoring in annualized consumer price index growth for 2010 at 2.0%, the result is a ‘real’ gain of 1.0%.

“The contraction in the U.S. economy continues to cause U.S. businesses to exercise restraint in growing base salaries,” according to Tom McMullen, Hay Group’s North American Reward Practice Leader. “The performance-oriented, post-recession world in which organizations are operating has far-ranging implications for reward. HR executives are looking for ways to balance the cost of reward programs and limited pay increases with the need to attract, retain and engage key talent. Many organizations are emphasizing ‘total’ reward programs as a result – engaging employees in non-monetary ways through more meaningful work experiences, clearer career paths, global mobility and targeted development opportunities.”

Hay Group survey data shows that at the beginning of this decade, salary increases were tracking between 4.5% to 5.0% and then at a steady 4.0% from 2005 to 2008. The past three years have seen the lowest base salary increases that most employees have ever experienced. Further, planned increases for 2011 are slightly higher than this time last year and are consistent across executive, middle management, supervisory and clerical positions, and relatively consistent across most industry sectors.

“While there isn’t a significant shift in pay increases for the coming year, the mix of that pay is changing. As organizations emerge from the recession, they are shifting more focus from fixed to variable pay. This is partly cost-driven, as those organizations with higher proportions of variable pay tend to have more flexibility to cope with economic volatility. Variable pay has also proven to be an effective lever for motivating performance and aligning employees with the organization’s goals and priorities,” said McMullen.