What Will Compensation Trends Be in 2014?

imagesFor HR professionals engaged in setting compensation scales and pay increases for 2014, it is important to be aware of signals from the labor market.

According to the Bureau of Labor Statistics in the Department of Labor,

“Compensation costs for civilian workers increased 2.0 percent for the 12-month period ending December 2013, essentially unchanged from the December 2012 increase of 1.9 percent. Wages and salaries increased 1.9 percent for the current 12-month period. In December 2012 the increase was 1.7 percent. Benefit costs increased 2.2 percent for the 12-month period ending December 2013. In December 2012 the increase was 2.4 percent.”

The BLS figures for private industry workers are similar.

The Consumer Price Index increase for the same period was 1.6%.  If prices are increasing at less than 2% per year, then a 2% increase in wages would provide some growth in real earnings for employees, albeit a small growth.

However, the Society for Human Resources Management says that average base pay increases for 2014 will be about 3 percent for the second year in a row in the U.S. SHRM’s source is the Compensation Planning Survey by Buck Consultants.  A 3% growth in wages would provide more relief to workers still buffeted in a struggling economy.

Yet one study from Payscale.com said that wages would increase by 4.5% in 2014.  See their Compensation Best Practices Report, 2014—The Year of The Great Balancing Act. I think this study is an outlier, and wage increases in most categories are likely to be in the 2-3% range.

Nevertheless, I do believe 2014 is likely to be a balancing act for employers in determining how to pay their employees. In a year where healthcare costs are uncertain and the prognosis is changing daily, setting wages is harder than ever.

coins imageWorkers, of course, care more about their personal wage increase than about averages. Employers continue to try to differentiate pay increases based on performance, according to SHRM. This means that more employees will receive less than 3% increases than receive more.

Most employers I’ve worked with recently have increased wages 2% or less each year for the past few years. I work with several non-profits, and their pay budgets remain extremely tight. They are less likely than for-profit companies to differentiate their increases based on performance, in part because little differentiation is possible with only a 2% increase budget.

We all hope that at some point the economy and the job market will improve. The question for employers—for-profit and non-profit employees alike—is when.

Another question is how employers can anticipate that point of improvement. And a third question is what they can do to retain their best employees—with compensation and with other tools for employee retention.

For more on compensation trends for 2014, see

2014 Salary Trends That Will Impact Staffing, by John Rossheim, on Monster.com

2014 US Salary Planning Information, from the Hay Group

2014 Compensation and Governance Outlook Report, from Equilar

What are your thoughts about increasing wages for your employees, and about employee retention generally?


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