Retention-focused US companies giving “stars” bigger raises

Top performers at many US companies are receiving significantly higher raises than their average and low-performing counterparts, but an appetite for even greater rewards for the best employees remains, surveys show.

Exempt workers who received the highest performance ratings were given an average salary increase of 4.6% in 2013, according to a survey of 910 US companies by global professional services company Towers Watson.

Raises for exempt employees with average performance ratings received an average raise of 2.6%, and workers with below-average performance ratings received an average raise of 1.3%.

“Retaining top performers and critical-skill employees is a significant challenge for most US employers, even with the ongoing overall softness in the labour markets,” Laurie Bienstock, Towers Watson’s North America Rewards leader, said in a news release. “As a result, companies are resorting to a variety of reward strategies to make sure these employees don’t seek employment elsewhere when the job market heats up.”

Companies’ rewards to top employees, according to Bienstock, included larger raises, large incentive payments, and one-time discretionary and spot bonuses.

Despite evidence of bigger rewards for high performers, some employers have difficulty figuring out how to appropriately reward top, average and poor performers, according to Laura Sejen, Towers Watson global practice leader for Rewards.

A separate Towers Watson survey of US and Canadian companies indicated that 24% of organisations give some type of pay incentive to employees who fail to meet performance expectations. And annual incentive plan funding has consistently been below targeted levels in seven of the last nine years in the United States and the last five years in Canada, according to the survey.

Fewer than half of employees in the US/Canada survey agreed that high performers are rewarded for performance.

Overall, pay raises in 2014 are expected to remain modest and in line with workers’ pay increases in 2013 and 2012, according to the US survey. Organisations are planning average pay raises of 2.9% for salaried, non-management employees.

The projected raise for 2014 was a smidgen higher than the 2.8% raises workers received in 2013 and 2012, according to the survey.

Because the US job market has been relatively soft, companies are not feeling pressure to raise salaries by much more than the rate of inflation, Sejen said. Also, the rising cost of health care diminishes companies’ rewards budgets, she said.

“Pay remains one of the most important factors when an employer considers joining or remaining with a company,” Sejen said in a news release. “So employers need to be cognisant that they potentially risk losing employees if their compensation programmes aren’t in sync with competitive market practice.”

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.