Employee Salaries Are Going Up: Can Your Company Compete?

The PayScale 2012 Compensation Best Practices report polled thousands of HR and business leaders in small, midsized and large companies about the work force and compensation trends they saw last year and how those trends will affect pay going forward in 2012. The annual survey of businesses’ compensation plans has some good news for employees—but for employers, the numbers might be cause more for worry than for celebration.  Here’s what Payscale found.

money in hand

Raises made a comeback in 2011:

  • 44 percent of employers increased salaries by 1 to 5 percent.
  • 19 percent of employers increased pay by 6 percent or more.
  • Overall, more than 60 percent of employers adjusted salary structure in the last 12 months. That’s a major increase from 2010, when just 30 percent did so.

Pay-for-performance is hot:

  • 69 percent of employers say performance based pay was the main reason they adjusted salary structure in 2011. This was true regardless of business size.

Hiring is on the upswing:

  • At least, it is in midsized companies, 44 percent of which hired employees last year.
  • The biggest growth area: 57 percent of information, media and telecommunications companies hired in 2011.

Retention is still the number one work force issue:

  • 54 percent of employers say employee retention is their biggest concern.
  • In contrast, just 16 percent say attracting new job candidates is their biggest concern.

Why would employees leave a job? While just a few years ago, employers usually held the reins in deciding when employees left a job, the reasons have changed. In 2009, the number one reason employees left a job was poor performance. But in 2011, the number one reason for leaving a job was to seek higher pay elsewhere.

What’s the outlook for 2012? Employers are feeling good about the coming year – and that’s translating into more money for employees as well. Two thirds of employers believe their companies’ financial performance will improve in 2012, and a whopping 93 percent plan to adjust employee compensation accordingly. In fact, 41 percent plan to give pay raises to more than half their employees. And 50 percent plan to use performance-based pay to reward and retain their top employees.

If you’re in one of the three industries with the biggest plans to hire, you might be wise to be worried. Eighty percent of business support services companies, 78 percent of information, media and telecommunications companies, and 77 percent of retailers expect to hire this year.

So here’s the big question: Will your business be able to keep pace with companies that are raising pay? What steps can you take to keep employees happy? The reality is, especially if you’re in one of the three industries cited above, it’s going to be harder to keep your team in place with what I call the “3 P’s:” praise, perks and the personal touch of a small workplace. This might be the year you do need to figure out some way to reward employees with hard dollars.

Hopefully, your company is one of the majority predicting better sales in 2012. If so, it makes sense to share the wealth. And a less risky way to reward employees rather than raising salary or base pay can be to tie compensation to performance. That way, employees benefit if the company does – but if they don’t perform, and your profits don’t live up to expectations, you’re not stuck footing the bill.

How will you reward employees in 2012?

Money Photo via Shutterstock


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

5 Reactions
  1. Hi Rieva,

    I liked this article a lot. I run a blog on career development and came across similar research as well, but in starting salaries of college grads.

    Those are going up across the board as well.

    Like you said, retention is probably a major reason for this. With this long recession, many employees are holding out until they can find a better job or more money. If companies want to hold onto their employees, a raise won’t hurt.


  2. Smaller companies need to realize it isn’t always about salary. If you provide a good work environment and give employees a chance to progress in their skills and career they will stay around.

    • Great point, Robert. There are many aspects to take into account – especially for younger workers. There has been such an advance in technology that there is a disconnect in the generations at some places. I’ve read articles that suggest younger workers would take a lower paycheck for a positive work environment and flexible hours.

  3. Thank you for the great insight. Higher salaries can be compensated with increased flexibilility in work schedule, the option to telecommute, an easier dress code, etc. Sometimes perks like these, which may seem simpler than increased salaries, can have employees stick with the company and in fact be happy and more contended.

  4. Very useful set of information.
    But one fact particularly caught my attention and its about the fact that “54 percent of employers say employee retention is their biggest concern.”

    Personally, i think one of the major problems for some smaller companies is how they set their long term approach for employees, and by that I mean their employees leave them after a while mostly because they don’t invest in them, whether with salary increase or additional knowledge(paid courses etc.). In other words they treat them the same way they did when they came to their company.
    That approach is bad for employee since he doesn’t see any kind of professional progress and for business because it always has to reinvest time & resources
    in new employee(with low starting salary) when the old one leaves.