Pay budgets finally on the increase, Mercer survey shows

Pay packets have finally rebounded from the effects of global financial crisis (GFC), but will only continue to rise at a conservative pace, according to Mercer’s latest salary survey.

Mercer’s Market Issues Survey of 132 organizations reveals that salary increases have started to rise, after bottoming out at 3 percent for the year ending December 2009. The rate of growth in salaries increased to 3.5 percent in July 2010, as improving economic conditions led employers back to more competitive labor market conditions.

Derek Berry, principal in Mercer’s Human Capital business said that while remuneration budgets are now slowly rebuilding, there is likely to be a mismatch between employee expectation and pay budget allowance.

“The increased salary movement is consistent with improved economic and business performance over the past six months. It reflects greater confidence that the worst of the downturn is now behind us, and with similar stories being told in the media, employees are expecting salary movements to be on par with increased remuneration budgets. Some may even be expecting catch ups as our data shows that a significant number of employees received zero increases at the last review,” said Berry.

“However, employees should not be expecting pay rises of 5 percent or more as seen before the GFC, as anticipated salary increase budgets are still conservative. Despite August 2010 being the ninth consecutive month Australia has seen a rise in full-time employment, as well as better performance than many global economies, organizations are still cautious and not quite ready to commit to high remuneration budgets,” he said.

Mercer’s survey found that if economic conditions continue to improve as expected, an acceleration of remuneration increases and budgets is likely throughout 2011. Paired with jobs growth and an increasing demand in labor, the survey found that salary increases are forecast to rise by 4 percent during the next 12 months.

Berry says that the reason for conservative budgets is not simply fear of a double-dip recession, Australian employers are now struggling to confront a number of other factors.

“Organizations face a difficult landscape when rethinking their remuneration strategies. Many are still coming to terms with legislative changes, such as the Fair Work Act and the potential impact of the mining and resources tax,” said Berry.

“On top of a steadily growing skills shortage, these changes have left employers still trying to get their heads around what the post-GFC business environment looks like, especially from multi-nationals that have a head office in a location where the financial crisis has hit hard. Until this is clearer, organizations will not consider boosting remuneration budgets to the levels seen two years ago. However, given many Asian countries have rebounded quickly, this may change sooner rather than later,” he said.

Berry said while pay increases remain subdued, employers must continue looking at ways to keep their talent happy, other than remuneration.

“Changes in organizations’ strategies that were forced by the GFC or other factors, have increased the impetus for organizations to conduct a review of their reward strategy in preparation for a potentially significant upswing. While improved pay outcomes will be welcomed by employees, they are also likely to be considered ‘overdue’ after the belt tightening many have had to experience over the past two years,” said Berry.

“In this regard, organizations should ensure that they spend available dollars on ensuring that both remuneration and non-remuneration rewards are targeted at retaining the skills and talent in the roles that are critical to the business. Non-remuneration rewards should include consideration of flexibility of benefits and leave arrangements, the right work/life balance and clarity around careers,” he said.

Regional salary movements
Salary movements in July 2010 were fairly consistent across the states, however there appears to be a return of the ‘two-speed’ economy with Queensland (QLD) and Western Australia (WA) with both rising above the national median (3.5 percent) to 4 percent. Salary growth in New South Wales (NSW) and Victoria (VIC) was in line with the national median at 3.5 percent, whilst South Australia (SA) fell below with 3 percent.

“After seeing a convergence of remuneration movements between the states throughout the GFC, the pace has most notably picked up in Western Australia and Queensland, due to their mining and infrastructure investment activity. This may result in a need for differential pay structures if they have not already been implemented.

“Demonstrating a rising demand for labor and skills in this region, both states are showing signs of even greater acceleration in 2011, with forecasts predicting a 4.5 percent salary growth in Queensland. As the economy continues to improve over the next 12 months, it is expected these states will break even further away from the other regions,” Berry said.

About Mercer:
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies Inc.