Average Salary Increases: What's On the Horizon for 2009?

October 20, 2008

Over the last several weeks, it seems the United States has come entirely unglued–at least financially. It’s enough to make any worker uneasy about job security and compensation. With all the fiscal unrest, we wonder: what can we expect for an average salary increase in 2009, in light of the sorry state of the economy?

Several reports released earlier this year, before the recent $700 billion federal bailout of banks, provide a clue as to what workers might expect in terms of an average salary increase next year. Hewitt Associates says workers can expect a 3.8 percent average salary increase next year, while a study by Mercer says employers plan to give average salary increases of 3.7 percent. Likewise, a PayScale story, “5 Salary Secrets Your Company Won’t Tell You” reports that, according to the 35th annual WorldatWork Salary Budget Survey, workers can expect an average salary increase of 3.9 percent.

Behind Less-than-Stellar News of Average Salary Increases, Hope Lurks

Such stagnant projections seem little reason for celebration, especially considering that escalating costs of nearly everything (the recent nosedive of gas prices notwithstanding) will easily devour average salary increases. But Ken Abosch, leader of Hewitt’s North American Compensation Consulting business, says there’s reason for hope. “With the current economic climate, we would anticipate seeing lower base pay raises, smaller variable pay awards and more companies freezing wages. Our findings indicate that companies are making small corrections, but they aren’t panicking—they’re staying the course and remaining relatively stable compared to prior economic downturns,” Abosch says.

Variable pay is another bright spot. Variable pay–such as signing bonuses, retention bonuses, and individual performance awards–is still popular among employers, despite fiscal woes, as Abosch notes. Employers, facing a growing dearth of talent as baby boomers near retirement, are relying on variable pay to attract talent and motivate their top performers, according to Hewitt.

Do You Know What You're Worth?

The Mercer findings also provide another source of promise, as a Wall Street Journal article notes. If you’re a top performer, you can expect to see a higher average salary increase than your colleagues who so-so or full-on slackers. According to Mercer, highest-performing employees, or 14 percent of the workforce, can expect average salary increases of 5.6 percent in 2009 compared to 3.3 percent for average performers and 0.6 percent for the weakest performers. To some extent, this suggests you’re still in the driver’s seat when it comes to determining your raise–of course it depends on your industry and the overall health of your employer. So keep working hard and looking for ways to shine; your payoff just might boost your bank.

And perhaps most interesting is how resilient the American spirit has remained despite all the news and talk of money woes. According to a Pew Research Center survey, “there are no signs that the crisis has eroded people’s fundamental confidence in either their own personal financial outlook or the nation’s.” The survey, conducted after the bailout crisis erupted, says 41 percent of the public rates its finances as excellent or good, almost identical to the 42 percent reporting this in July. Meanwhile, fewer people–57 percent–say their income is trailing the cost of living, compared to 64 percent in July.