Three Percent Pay Raise the 'New Normal' for 2013
As the economy picks up, slightly higher pay raises are coming with it.
Many U.S. workers can expect to bring home 3 percent more in 2013 than they did this year, according to forecasts from national compensation surveys.
That's just over the average median pay raise of 2.7 percent to 2.8 percent in 2012. It's also more than the 2 percent to 2.5 percent raise most employees saw immediately after the recession, which started in late 2008, according to a 2013 salary report from Bucks Consultants.
Three percent raises are the new normal, says Ravin Jesuthasan, a compensation expert and managing director with management consultant Towers Watson. "I don't think anyone should expect merit increases to deviate that much going forward, even if the economy does well," he says.
Pay raises remain skimpy because unemployment is still high, and because companies continue to keep a lid on fixed costs, including labor, according to Jesuthasan and other compensation analysts. (Read More: Economy Stinks for Many, But It's Crushing Millennials)
As earnings at many businesses improve, however, they're spending more on variable compensation. Put into plain English, that means next year workers can expect to see bigger bonuses or other monetary incentives, things that companies can choose to pay out or not depending on how they're doing financially.
Top performers, people who do the best at going above and beyond their job descriptions, will see the biggest bonuses of all, roughly 50 percent more than the average worker, says Kerry Chou, a compensation practice leader for WorldatWork, the nonprofit human resources researcher.
During hard times when companies were asking fewer employees to do more for little or no change in compensation, promotions were few and far between. That's changing, too, says David Van De Voort, a Buck Consultants principal. For 2013, he says, "we're seeing a nice uptick in the percentage of people offered promotions, and also the size of the pay increase that people get for the promotion has gone up." Promotions are double-edged swords, though, because more pay comes with more work and responsibility, he says.
Here are other trends compensation experts predict for 2013:
- Energy industry employees will get the biggest pay bumps. Oil, gas and mining companies are expected to give average median pay raises of 3.8 percent to 3.9 percent in 2013, according to the WorldatWork 2012-2013 Salary Budget Survey. High gas prices and energy production make these "booming" industries, Chou says.
- Educators and government employees will miss out. Teachers at all levels and public-sector employees — think postal workers — will see the smallest raises, averaging 2.1 percent, Chou says.
- Talent shortages in in-demand jobs will continue to drive up wages. Despite lingering high unemployment, companies will continue to have trouble filling openings for airline pilots and select white-collar jobs, as well as skilled laborers such as tool and die makers due to talent shortages in those fields. As a result, people with highly sought-after skills can expect to see pay raises "much higher" than the average as companies try to keep them from jumping to the competition, Jesuthasan says.
- Employees will pick up more of their own health insurance costs. Companies continue to ask workers to assume a higher share of health care premiums, negating some pay increases. "We have the added complication of Obamacare and employers trying to figure out how to cope with that," Van De Voort says. Some companies are cutting back hours so employees won't be eligible, while others want to provide benefits "but are struggling to figure out how to afford that," he says. (Read More: Obamacare, Host of Others Need Slashing: Simpson-Bowles)