More companies using performance-based awards that must be re-earned annually

Salary increases for U.S. workers in 2014 are expected to reach their highest levels in six years, according to Aon Hewitt's 2013 U.S. Salary Increase Survey of 1,147 companies.

Still, average increases are projected to remain modest, as employers strive to reserve the majority of their compensation budgets for merit increases and performance-based awards for high-performing workers.

After reaching an all-time low of 1.8% in 2009, salary increases have inched upwards year-over-year. Salaried exempt workers are projected to see base pay rise 3.0% in 2014, up slightly from 2.9% in 2013. This is the highest level since 2008, when salary increases were at 3.7% for salaried exempt employees.

Salaries represent the largest portion of employer costs today. With a sizable talent pool available and increasing global competition for goods and services, companies aren't feeling tremendous pressures to increase base pay to attract top talent. Instead, they are executing on a pay-for-performance vision that rewards employees based on a mix of business and individual results.

Rewarding Top Performers

Aon Hewitt's survey shows employers would like to allocate a majority of their salary increase budgets towards high-performing workers. In 2013, top performing workers saw average increases of 4.7%, almost two times the amount the average worker (those who met expectations) received at 2.6%. Employees who did not meet expectations received average increases between 0.2% and 0.9%.

Performance-Based Awards

According to Aon Hewitt's survey, an increasing number of companies continue to use broad-based variable pay programs: or performance-based awards that must be re-earned each year: as a way to reward top-performing workers.

Ninety percent of companies offer a broad-based variable play plan and expect to spend 12.0% of payroll on variable pay for salaried exempt employees in 2014. This is up significantly from a decade ago, when just 78% of companies offered a variable pay program, with an average increase of 9.5% of payroll.

Save the Dates

On October 8, 2013, HR consulting firm Operations Inc. is sponsoring CBIA's HR Council meeting on the topic of performance management at CBIA's offices in Hartford. CBIA's HR Council meetings are fast paced discussions of relevant topics, and performance management is particularly timely as companies approach year's end and are determining annual bonuses and planning compensation strategies for 2014. Register here.

On November 13, 2013, from 11:30 am to 12:30 pm, Operations Inc. is sponsoring a CBIA webinar on performance management. Spend an hour online with us for valuable information on how to maximize the return on your compensation strategy. Register here.