What’s going on with salaries at the nation’s small businesses? Will small-business owners’ employees be able to look forward to pay raises next year? The answer is a qualified “maybe.”
According to an Aon Hewitt study of more than 1,300 U.S. companies, reported by LifeHealthPro, pay has been slowly creeping upward since 2009, when average annual pay raises hit an all-time low of 1.8 percent, Aon Hewitt reports. In 2012, base pay increases for salaried exempt workers reached 2.8 percent, slightly higher than 2.7 percent in 2011. In 2013, Aon Hewitt projects more of the same, with base pay increases for executives, salaried exempt and salaried nonexempt workers predicted to hit 3 percent.
The New NormalWhile this is somewhat positive news, it doesn’t mean employees can expect raises to reach pre-recession levels of 4 percent or more in the near future—or perhaps ever again. As increased global competition takes its toll, Aon Hewitt says, companies are taking a conservative approach to compensation, meaning puny salary growth is likely to be the “new normal” for some time to come.
Over at SurePayroll, which tracks hiring and salary data for more than 35,000 of the smallest businesses nationwide (those with an average of eight employees), the forecast for workers hoping for a raise is even more dismal. The latest SurePayroll Small Business Scorecard found that year-over-year, small business paychecks are down 1.2 percent nationwide (largely because hiring is down 1.6 percent).
The only region of the country with positive movement compared with last year is the South, where hiring is up 1.3 percent year-over-year and paychecks are up 0.5 percent. The hiring situation is worst in the West, with a decline of 5.3 percent year-over-year, while salary growth is worst in the Northeast, with a decline of 3.1 percent year-over-year.
On the UpsideThere is one ray of hope for both employees seeking financial rewards and small-business owners seeking to motivate their staffs without busting the budget. Aon Hewitt found a growing reliance on performance-based pay (such as bonuses) instead of straight salary increases.
In 2012, according to Aon Hewitt, 90 percent of companies offered at least one variable pay program. That’s similar to the percentage who did so in 2011, but the total amount spent on variable pay as a percentage of payroll is rising steadily. In 2011, companies spent 11.6 percent on variable pay; in 2012, the number hit 12 percent; and in 2013, it’s projected to rise again to 12.1 percent.
Variable pay is a good idea for both entrepreneurs and their employees. For entrepreneurs, it offers a great way to tie pay directly to results. If you want to ensure paying bonuses doesn’t become a hardship for your business, make sure you clearly tie bonuses to financial performance, such as hitting certain sales quotas or profit margins. That way, you don’t end up with an obligation to pay a bonus that you can’t afford.
For employees, variable pay gives them a “carrot” to work toward, increasing engagement and making them feel they have some control over their compensation through their efforts. You may not be able to afford regular salary increases right now, but done right, variable pay can be an even better substitute.
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