Average pay raise in 2014 is expected to be 2.9 percent

As the economy steadies, so do pay raises for U.S. employees. Mercer’s newest survey shows that the average raise in base pay is expected to be 2.9 percent in 2014, modestly up from 2.8 percent this year and 2.7 percent last year and in 2011.

Moreover, salary increases for top-performing employees — about 7 percent of the workforce — will be higher as companies continue to focus on retaining top talent.

“Employers recognize that their greatest challenge is to retain their top performers to avoid post-recessionary flight of these valuable assets. This means they have to reward and recognize them,” Jeanie Adkins, partner and co-leader of Mercer’s Rewards Practice, said in a statement. “This includes providing higher pay increases along with other non-cash rewards such as training opportunities and career development.”

Mercer, a New York-based global consultant, has been conducting an annual survey on compensation trends for more than 20 years. This year’s responses came from nearly 1,500 mid-size and large employers across the U.S. and reflect pay practices for more than 13 million workers.

Survey results are captured for five categories of employees: executive, management, professional (sales and non-sales), office/clerical/technician and trades/production/service.

As organizations look for ways to pay for performance, Mercer says they are segmenting their workforce first and foremost by high-performing as well as high-potential employees. As a result, companies are rewarding these employees with significantly larger increases than those in the lower-performing categories.

Mercer’s survey shows that the highest-performing employees received average base pay increases of 4.6 percent this year compared with 2.6 percent for average performers and 0.2 percent for the lowest performers.

“In an improved economy top performers continue to get salary increases nearly twice that of an average performer which indicates that pay for performance is alive and well in the annual merit process,” says Catherine Hartmann, a principal in Mercer’s Rewards consulting business. “Differentiation of salary increases based on performance is now commonplace and remains an effective way for employers to recognize those employees that enhance the company’s competitiveness and contribute to its success.”

According to Mercer’s survey, companies are engaging in a variety of practices to strengthen employee engagement and help improve work-life balance overall. Some of the more prevalent practices include sponsored conferences, professional development events, additional non-monetary recognition awards, and enriched job sharing/flexible hours.

“Employers are clearly starting to see the value of assessing and addressing their workforce needs systematically,” said Hartmann. “They recognize that engaged employees are less likely to seek job opportunities outside of the company, and therefore, have a more positive influence and impact on both team and business performance.”

For more information on survey results, visit www.imercer.com/cps.