Presented by HR 3D/Solutions
10/5/12
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• 2013 Merit increase forecast data
– increase by performance level
– promotion % increase by category
• How to use a merit increase matrix
• The cost of turnover
– Looking back from 2008
– Formula for tracking turnover
– Savings by reducing turnover
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• This presentation covers the merit forecast for 2013
and the actual increases for 2012
• It shows the merit increase by job category, Exempt,
NEX, Executive, etc.
• It also shows the average increase by performance
level and promotional increase
• For the past 8 years (see last chart) the average
merit increase has been 3.1%
• All major survey houses are forecasting 3% for 2013
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• Based on a sample of 316 companies, the Conference
Board's U.S. Salary Increase Budgets for 2013 survey
also reveals a median increase of 3 percent in 2012, just
like in 2011. Projections for 2013 are 3 percent as well—
an indication that the economic recovery has not yet
picked up enough strength to substantially raise salary
budgets.
• Despite the relatively low level of projected salary budget
increases in 2013, the danger of inflation eroding the real
value of the increase appears slight, according to the
Conference Board.
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• U.S. salary increase budgets remain historically low, but projections for
2013 show a modest increase, according to The Conference Board annual
salary increase budgets survey report released today.
• For the second straight year, the median salary increase budget is 2.5
percent. Projections for 2013 show a modest increase to 3 percent. (Salary
increase budgets refer specifically to the pool of money that an
organization dedicates to salary increases for the coming year. Generally, it
is represented as a percentage of current payroll.)
• The lowest median salary increase budget forecast for 2013 is in the
transportation industry—2.25 percent for exempt employees and
executives.
• The insurance industry is also below the 3 percent median overall forecast
for non-exempt salaried, exempt, and executives, while the banking sector
reported the lowest projected 2013 increase for non-exempt, hourly
employees.
• Across industries, the 2013 forecast for salary increase budgets showed
little variation, with no employee group in any industry projected to
exceed the overall median of 3 percent.
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• According to Aon Hewitt's survey of more than
1,300 U.S. companies, base pay increases for
salaried exempt workers were 2.8 percent in
2012, up marginally from 2.7 percent in 2011.
Salaries have inched upwards year-over-year
since 2009 when pay increases reached an alltime low of 1.8 percent.
• Pay increases are expected to rise slightly in 2013.
For executives, salaried exempt and salaried
nonexempt workers, Aon Hewitt projects base
pay increases of 3.0 percent in 2013.
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• According to Mercer’s 2012/2013 U.S.
Compensation Planning Survey, the average raise
in base pay is expected to be 2.9 percent in 2013,
up slightly from 2.7 percent in 2012. In 2011, the
average increase also was 2.7 percent, which was
up from 2.3 percent in 2010.
• The survey also found more than 95 percent of
organizations are planning to award base salary
increases next year.
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Historical U.S. Salary Increases
2009
2010
2011
2012
2013(Prjocted)
Executive
1.40%
2.40%
2.80%
2.90%
3%
Salaried EX
1.80%
2.40%
2.70%
2.80%
3%
Salaried NEX
1.90%
2.40%
2.80%
2.70%
3%
2%
2.40%
2.70%
2.70%
2.90%
2.20%
2.50%
2.60%
2.50%
2.60%
Non Union Hourly
Union
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Nonexempt Hourly
Nonunion
Nonexempt Salaried
Exempt Salaried
Officers/Executives
All
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2010
Mean Median
2.40%
2.70%
2.40%
2.70%
2.40%
2.70%
2.50%
2.70%
2.50%
2.70%
2.50%
2.70%
Salary Budget Increases (zeros included)
2011
2012
Mean
Median
Mean
Median
2.70%
3%
2.90%
3%
2.80%
3%
2.90%
3%
2.80%
3%
2.90%
3%
2.80%
3%
2.80%
3%
2.80%
3%
2.90%
3%
2.80%
3%
2.90%
3%
2013(Prjocted)
Mean Median
2.90%
3%
3.00%
3%
3%
3%
3%
3%
3%
3%
3%
3%
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U.S. Total Salary Budget Increases, by Employee Category
Actual
2012
Mean
Actual
2012
Median
Projected
2013
Mean
Projected
2013
Median
Nonmanagement (hourly
nonunion)
2.8
3.0
2.9
3.0
Nonexempt salaried
2.9
3.0
3.0
3.0
Exempt salaried
2.9
3.0
3.0
3.0
Officers/executives
2.8
3.0
3.0
3.0
Source: WorldatWork.
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Salary Budget Increases
India
China
Brazil
United States
Spain
Japan
Source: WorldatWork.
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Actual
2012
11.2%
9.1%
7.7%
Projected 2013
2.8%
2.8%
2.6%
3.0%
2.9%
2.7%
10.7%
8.8%
7.2%
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Distribution of Total Salary Budget Increase Responses, Actual 2011 vs. Actual 2012
0%
.1-1.9%
2-2.9%
3-4%
4.1-6.9%
7% +
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
Nonexempt Hourly Non
Union
7.00%
6.00%
4.00%
4%
36.00%
37%
49.00%
53%
3.00%
4%
1.00%
1%
Nonexempt Salaried
7.00%
5.00%
4.00%
4%
33.00%
29%
52%
56%
4%
5%
1%
0%
Exempt Salaried
6.00%
5.00%
4.00%
4%
33.00%
35%
52%
56%
4%
5%
1%
1%
Officers/Executives
10.00%
8.00%
4.00%
4%
29.00%
26%
50%
55%
6%
5%
2%
1%
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Table 2g: 2012-2013 U.S. Base Salary Increases by Job Level, Function, and Performance
2012 Actual
United States
n
2013 Budgeted / Projected
Median
Average
(with Zeros) (with Zeros)
n
Median
Average
(with Zeros) (with Zeros)
Job Level
Executives
899
3.00%
2.81%
829
3.00%
2.95%
Director & Manager Level
946
3.00%
2.84%
871
3.00%
2.97%
Individual Contributors: Salaried & Exempt
955
3.00%
2.79%
878
3.00%
2.95%
Individual Contributors: Hourly & Non-Exempt
927
3.00%
2.72%
856
3.00%
2.86%
Sales
657
3.00%
2.48%
612
3.00%
2.65%
IT / Technical / Engineering / Scientific
874
3.00%
2.83%
811
3.00%
2.98%
High Performing Employees
759
4.00%
4.31%
695
4.00%
4.45%
Average Performing Employees
762
2.90%
2.79%
699
3.00%
2.87%
Low Performing Employees
750
1.00%
0.94%
689
1.00%
0.95%
Job Function
Job Performance
Source: 2012-2013 Culpepper Salary Budget Survey, August 2012, © Culpepper and Associates, Inc.
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Table 2i: 2012-2013 U.S. One-Step Promotional Increases as % of Salary per Promoted Employee
2012 Actual
United States
n
From Individual Contributor Level Job to
Higher Individual Contributor Level Job
From Individual Contributor Level Job to
Manager/Director Level Job
From Manager/Director Level Job to
Executive Level Job
2013 Budgeted / Projected
Median
Average
(w /o Zeros) (w /o Zeros)
n
Median
Average
(w /o Zeros) (w /o Zeros)
500
7.00%
7.55%
448
6.50%
7.19%
485
10.00%
9.34%
447
10.00%
9.02%
397
10.00%
11.66%
376
10.00%
11.16%
Source: 2012-2013 Culpepper Salary Budget Survey , August 2012, © Culpepper and Associates, Inc.
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Historical U.S. Base Salary Increases
Average (Mean) Base Salary Increase
2005
Actual
2006
Actual
2007
Actual
2008
Actual
United States
Includes
Includes
Includes
Includes
Salary
Salary
Salary
Salary
Freezes
Freezes
Freezes
Freezes
(with zeros) (with zeros) (with zeros) (with zeros)
All Companies in U.S. (Aggregate)
3.5%
3.9%
3.8%
2009
Actual
Excludes
Salary
Freezes
(without
zeros)
Includes
Salary
Freezes
(with zeros)
2010
Actual
Excludes
Salary
Freezes
(without
zeros)
Includes
Salary
Freezes
(with zeros)
2012
Budgeted /
Projected
2011
Actual
Excludes
Salary
Freezes
(without
zeros)
Includes
Salary
Freezes
(with zeros)
Excludes
Salary
Freezes
(without
zeros)
Includes
Salary
Freezes
(with zeros)
Excludes
Salary
Freezes
(without
zeros)
3.85%
3.93%
1.66%
3.05%
2.38%
2.88%
2.92%
3.01%
2.91%
3.04%
Industry Sector
Technology Sectors
n/a
n/a
n/a
3.82%
3.94%
1.23%
3.01%
2.46%
3.01%
3.13%
3.29%
3.17%
3.20%
Life Science Sectors
n/a
n/a
n/a
4.03%
4.11%
2.46%
3.42%
2.55%
2.90%
3.03%
3.17%
2.82%
3.05%
Healthcare Sectors
n/a
n/a
n/a
3.75%
3.83%
2.28%
3.01%
2.29%
2.49%
2.54%
2.70%
2.66%
2.69%
1 to 100
n/a
n/a
n/a
4.35%
1.40%
3.40%
2.24%
3.36%
3.06%
3.46%
3.25%
3.52%
101 to 500
n/a
n/a
n/a
n/a
n/a
1.83%
3.14%
2.55%
3.03%
3.13%
3.27%
3.02%
3.18%
501 to 2,500
n/a
n/a
n/a
n/a
n/a
1.77%
3.11%
2.40%
2.80%
2.89%
3.00%
2.85%
2.94%
2,501 to 10,000
n/a
n/a
n/a
n/a
n/a
1.52%
2.87%
2.32%
2.75%
2.86%
2.97%
2.74%
2.83%
Over 10,000
n/a
n/a
n/a
n/a
n/a
1.51%
2.69%
2.31%
2.60%
2.66%
2.84%
2.70%
2.81%
# Employees
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4.13%
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•
•
•
•
•
•
Mercer expects that among midsize and large employers across the U.S., the average
raise in base pay is expected to be 2.9 percent in 2013, up slightly from 2.7 percent in
2012 and 2011, and 2.3 percent in 2010.
Hay Group forecast showing an average 3 percent salary budget increase for 2013, for a
net inflation-adjusted pay gain of 0.8 percent, after employees saw an estimated 0.6
percent inflation-adjusted net loss in 2012.
WorldatWork similarly predicted a 3 percent expected increase in 2013 up from 2.8
percent in 2012, in line with The Conference Board's findings.
Aon Hewitt expects 2013 base pay to rise 3 percent for executive, salaried exempt and
salaried nonexempt positions, and to increase 2.9 percent for nonunion hourly and 2.6
percent for union positions.
Towers Watson Data Services Salary Budget Survey of 857 U.S. companies, conducted
in June and July of 2012 shows companies are planning pay increases that will average
2.9 percent in 2013 for their salaried non-management employees
Culpepper predicted a 2.95 percent expected increase in 2013 up from 2.8 percent in
2012
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• A merit matrix is used to reward staff within a
set merit budget
• The merit pool is set up to keep the staff on
par with the CPI increases, while providing top
performers a greater increase
• The matrix is designed to reward top
performers that are low paid in their ranges,
by giving them more merit dollars and slowing
down high paid lower performing staff
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PAY/PERFORMANCE MATRIX
2013 MERIT INCREASE GUIDELINES
3% Merit Budget
POSITION IN RANGE
PERFORMANCE
RATING
FIRST
QUARTILE
(80% of
midpoint)
SECOND
QUARTILE
(90% of
midpoint)
THIRD
QUARTILE
(midpoint)
FOURTH
QUARTILE
(10% above
midpoint)
6% - 7%
5% - 6%
4% - 5%
3% - 4%
5% - 6%
4% - 5%
3% - 4%
2% - 3%
3.5% - 4.5%
2.5% - 3.5%
2% - 3%
1.5% - 2%
(5) Outstanding
(4) Exceeds Expectations
(3) Solid Performer
(2) Needs Improvement
NO INCREASE
UNTIL IMPROVEMENT IS DEMONSTRATED
and
(1) Unacceptable
Guidelines
Performance Rating Definitions
(5)
10%
Outstanding
20%
Exceeds
Expectations
60%
Solid
Performer
10%
Needs
Improvement
(part of
10% above)
Unacceptable
(4)
(3)
(2)
(1)
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Performance reflects an exceptionally high level of achievement relating
to all competencies and objectives. This individual has a significant
impact on department or organization’s performance.
Performance consistently exceeds requirements for most major
position accountabilities and meets all others. Demonstrates an
excellent range of key performance behaviors in the performance of
job duties.
Performance consistently meets and occasionally exceeds
requirements for the position. This individual consistently displays
competent, effective and fully acceptable performance. Demonstrates
required behaviors in the performance of job responsibilities.
Performance does not meet expectations or achieve desired results.
Sometimes meets the requirements for the position, but lacks
consistency in expected performance outcomes or behaviors.
Position responsibilities are consistently not being met and expected
results have not been achieved. Employees should be on a closely
monitored performance improvement plan and if improvement is not
achieved, HR should be consulted.
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• Each year HR 3D/Solutions conducts a
voluntary turnover survey for DC area firms
• Turnover has decreased as the economy has
slowed
• The cost of voluntary attrition runs between
20% and 30% of salary
• HR should do exit surveys of staff leaving to
see what their reasons are
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• The overall average turnover percentage for all companies
in 2011 was 13.7%
• The overall average turnover percentage for all companies
in 2010 was 15.17%
• The overall average turnover percentage for all companies
in 2009 was 12%
• The overall average turnover percentage for all companies
in 2008 was 16.9%
• The overall average turnover percentage for all companies
in 2007 was 15.2%
• In the 2006 survey the overall turnover rate was 19.4%.
• In the 2005 survey the overall turnover rate was 19.2%.
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Government
Contractors
Avg. Turnover
2009
Avg. Turnover
2010
Avg. Turnover
2011
# Firms
2011
Less 100 Employees
8.0%
7.04%
12.05%
6
100 to 500
18.5%
23.03%
18.86%
13
500 to 1,000
13.30%
14.06%
13.20%
6
1,000 to 5,000
13.2%
14.66%
13.36%
12
5000 to 50000
15.8%
14.16%
15.03%
6
14.4%
15.61%
15.52%
43
21
Turnover Cost Formula
High turnover can sabotage your company's bottom line. To estimate the cost of turnover
in your firm, use the following formula.
Select a department or job function that has a lot of turnover. Use an actual number or,
lacking exact statistics, estimate the number of people who left the job or department
during the last 12 months. Write that number below on Line
4.
The average cost of turnover is 25 percent of an employee's annual salary (Line 1) plus
the cost of the benefits (Line 2) you provide. Typical benefits amount to about 30% of
wages.* The total cost per employee (Line 3) is the total of Line 1 and Line 2.
1
2
3
4
5
Annual Wage:
x .25 =
Annual Wage:
x .30 =
Total turnover cost per employee (add Lines 1
and 2):
Total number of employees who left:
Total cost of turnover (multiply Lines 3 and
4):
Source:
Saratoga Institute
* Total cost of a complete benefits package on top of
payroll.
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For every percentage decrease in turnover, there will be a quantifiable dollar savings. Assume an average salary of $60,000 for a
staff of 1,000 employees, with 20% turnover rate. The chart below demonstrates what the turnover cost would be and the savings
realized by reducing turnover by 5%.
Number Staff
Average Salary
Turnover %
Cost of Turnover
Turnover #
Avg. Cost
Total Cost
Savings
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Cost of Turnover
1,000
$60,000
20%
25%
200
$15,000
$3,000,000
5% Turnover
Reduction
1,000
$60,000
15%
25%
150
$15,000
$2,250,000
$750,000
23
• We had over 50 companies participate last year
• The survey is conducted in February and the
results are released in early March
• The report is free for all participants
• Contact us at HR3D/Solutions and we will send
you the survey to complete. If you want last years
survey we will send it to you upon request
Spcompro@aol.com
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