Some positive news prevails despite continued mixed economic signals — salary budget increases for U.S. employees are improving. New survey results reveal the average raise in base pay is expected to be 2.9% in 2013, up slightly from 2.7% in 2012 and 2011, and 2.3% in 2010. These results are indicative of a steadily increasing trend. Moreover, for top-performing employees — 8 percent of the workforce — salary increases will remain higher as companies strive to balance compensation planning budgets with retention of critical talent.

According to Mercer’s 2012/2013 US Compensation Planning Survey, more than 95 percent of organizations are planning to award base salary increases in 2013. Additionally, 2013 is the third consecutive year showing a decline in the use of salary freezes and reductions.

Mercer’s most recent survey on compensation trends, which has been conducted annually for more than 20 years, includes responses from more than 1,500 mid-size and large employers across the U.S. and reflects pay practices for more than 12 million workers. The survey results are captured for five categories of employees: executive, management, professional (sales and non-sales), office/clerical/technician, and trades/production/service.

“Employers continue to recognize that in order to attract and retain top-performing employees they’re going to have to reward them in line with industry dynamics — for instance, oil and gas is a much more competitive market for critical talent than other industries,” said Catherine Hartmann, principal with Mercer’s Rewards consulting business. “And while base pay is still the most important element of the employment deal, companies are continuing to offer innovative programs beyond compensation.”

Workforce segmentation and analytics. Organizations are assessing what makes employees “tick” and where top-performers are choosing to work. As they strive to balance the need to retain key talent with their financial budgets, they are segmenting their workforce and focusing on identifying and recognizing high-potential employees. As a result, companies are still rewarding top-performers with greater than average increases, widening the gap between these employees and those in the lower-performing categories. Mercer’s survey shows the highest-performing employees (8 percent of the workforce) received average base pay increases of 4.4% in 2012 compared to 2.4% for average performers (54 percent of the workforce) and 0.1% for the weakest performers (2 percent of the workforce).

“Differentiating salary increases based on performance is the norm and remains an effective way for employers to wisely spend their reward dollars on the most impactful employees,” said Mike Burniston, leader of Mercer’s Human Capital consulting business for the U.S. and Canada regions. “Since many companies are still working with limited dollars, taking a holistic approach to total rewards using internal workforce analytics as well as external market data to set appropriate programs for each employee segment is the smart approach.”

According to Mercer’s survey, the top three factors influencing compensation decisions are the need to retain talent (reported by 74 percent of respondents), to strengthen the performance-based culture and to deliver pay for performance (66 percent), and to acquire talent (57 percent).

“Clearly employers are investing more time assessing workforce needs and identifying employees that will advance the organization,” said Ms. Hartmann. “They realize that applying workforce segmentation and analytics to determine where critical talent lies and what factors influence this group’s desire to work at a particular company is essential to the organization’s success.”

Source: Mercer; www.mercer.com.