Modest 2007 salary budget increases of 3.9 percent, which are expected to plateau in 2008, present a challenge for managers. They will have to think more holistically and learn the art and science of ‘total rewards’ to attract, motivate and retain talent.
Anne C. Ruddy, President, WorldatWork

U.S. companies are planning to hold the line on salary budget increases through 2008 to 3.9 percent across all employee categories. This according to the 34th annual WorldatWork survey.

Salary budget increases have risen one-tenth of a percent each year since 2004.

Salary budgets – the total amount of money allocated by an organization for all employee salaries – do not include other employment hard costs, i.e. medical/dental insurance, payroll taxes, 401(k) match, etc. Base pay increases may come from merit increases, cost of living increases and general increases (promotional increases are excluded).

"Modest 2007 salary budget increases of 3.9 percent, which are expected to plateau in 2008, present a challenge for managers," said Anne C. Ruddy, CCP, president of WorldatWork. "They will have to think more holistically and learn the art and science of ‘total rewards’ to attract, motivate and retain talent."

Washington, D.C. employers (see chart) report the highest total salary budget increase (4.1 percent) of all the surveyed metro areas. The biggest increase from 2006 to 2007 (3.7 percent to 4.0 percent) occurred in Houston.

Other key findings from the WorldatWork Salary Budget Survey:

- As in 2005 and 2006, the largest salary budget increases this year are targeted for officers/executives, outpacing workers in the three other employee categories, i.e. nonexempt hourly nonunion, nonexempt salaried, exempt salaried. In 2007, officers and executives experienced salary budget growth above 4 percent for the first time in six years.

- Companies with fewer than 500 employees reported the highest actual salary budget increase in 2007 at 4.1 percent. The biggest companies (more than 20,000 employees) reported an increase of 3.7 percent.

- Among major industries surveyed, public administration had the largest actual salary budget increase (4.3 percent) this year. The smallest increases (3.7 percent) were found in the transportation/utility and retail sectors.

- The percentage of organizations using variable pay increased slightly from 79 percent in 2006 to 80 percent in 2007, continuing a steady upward trend in the use of compensation that is contingent on performance or results achieved.