Note for 2005 Planning
This percentage will vary by industry, area and the conditions affecting an organization. But if there is one percentage one might give that would generally sum up 2005 merit increase plans it would be:
3.2%
Area: United States Average
Industry: All Industries
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ERI Economic Research Institute Summary |
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United States Average |
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Introduction
Traditionally, merit increase surveys are created from responses by non-decision makers months before actual budgets are approved. In recent years, well respected consulting and association surveys have reported rates that were off by more than 20% (2003 planned increases, for example, where data was collected in the summer of 2002). ERI’s results for that year were far more exact. However a year later our interactive online survey experienced a similar fate as mischievous souls inputted misleading data.
To explain: Merit surveys differ from incumbent online surveys where each input is weighted as a “1” (ERI is seeing its online interactive surveys working at its SalariesReview.com and eDOT Project sites where random noise can be filtered). Sound increase surveys focus on a “weighted average” where the weight is determined by the number of employees (averaging a 491 employee firm with 9 small firms with 1 employee each can provide a false average if the denominator is “10” rather than “500”). Over inflate an employee count and one can ruin almost any survey (enter 5,000 rather than 50). Also, increase rates are just one part of the equation. The number of months between increases has played a far more important role in the early part of this decade than they have in the past. Many large enterprises have “frozen” increases; some major employers are now into their 3rd year of salary increase freezes for their professional and management ranks. Corrupt data with corresponding large employee counts that affect both increase and interval computations and one corrupts any report absolutely.
For 2005, ERI has changed its methodology. We have collected salary increase rates since the late 1970s and modeled economic predictions of what we believe increases will be over the next 12-month period. This model is based both on inputted data and on the study of past and prior economic conditions and their ability to predict the subsequent year’s increase and interval rates. As with all Assessor Series data, values are created from past (and present when published) consensus norms of real survey data reflecting actual rates paid (and to be paid), as well as ERI collected data. (The latter is of no small consequence; ERI collects and analyzes thousands of salary surveys every year and our fileservers host inquiries at a rate of over 500,000/month.)
Background
In the late 1970s, ERI personnel assisted the then ACA in creating its first September Merit Salary Increase Survey. Several years later, we assisted the largest benefit consulting firm in publishing an "improved survey" released, of course, in August (1982), a month before ACA's survey release. Soon a competing firm released its survey in July and today we find consulting firms releasing "survey results" as early as March (for use with the next year’s Salary Planning).
Additionally, ERI finds many enterprises needing planned salary projections for dates other than January 1st and the static nature of the 1/1 planning means non calendar year enterprises often work with very outdated data. Still others require more refined projections by geographic area or industry and although the data and relationships are available, the mechanics for accessing this data have been lacking.
Evergreen Salary Increase Survey and Economic Modeling
Each time a participant enters data (as long as it is within an acceptable standard error), that data is incorporated in the database. Participants are also asked to comment on their enterprise's economic position as it relates to the market/competition (these norms are compared to various national statistic reports). Various projections are created so that one can (for example, between July and October 2004) retrieve data for Salary Planning Dates of:
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July 2004
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October 2004
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January 2005
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April 2005
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July 2005
Reviewers of this data should also analyze surveys from consulting firms and associations. The most robust data ERI collects are from the telephone calls its Subscriber Services Department takes each day with our senior researchers entering data based on these discussions. Salary Planning is “more than numbers,” the circumstances and conditions surrounding an enterprise’s salary increase plans are often more qualitative than quantitative, and always important. Calculate what 1% of your enterprise’s salary budget is, then almost double that amount for fringes and related costs, and you have the value of the decision about to be made. Mistakes made in salary planning accumulate year after year and in service firms can often exceed the profit reported at the end of a fiscal year. Make a mistake on a single position’s salary and an enterprise can survive. Make a series of cumulative wage and salary increase mistaken decisions and an enterprise is assured of staffing, profitability and downsizing corrections. (In firms where payroll is a significant portion of total expense, the cost to prevent a pay problem is always much less than the cost of correcting an overspending disaster.)
Estimated projections are available by national or state/province average in North America and by country in the 25 EU, 3 EFTA, and Russia and related areas now/soon to be covered in the UK/EU editions of the Assessor Series. (New: the Executive Compensation Assessor (UK/EU) software contains data and analyses for 1,000 UK companies (where reporting is mandatory) and 200 EU companies (where reporting is becoming mandatory). Annual reports (which take the place of proxy/10-K), summary comp tables and “data points/plots on graphs” match all features of the U.S. Executive Compensation Assessor®.
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