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2014 Salary Trends that Will Impact Staffing

2014 Salary Trends that Will Impact Staffing

By: John Rossheim

How are salary trends likely to scale in 2014?

In 2014, merit pay increases for exempt employees will continue in a fairly low range: 2.8 percent to 3.1 percent. That’s the consensus of compensation trends predicted by seven organizations surveyed by Kutchins, Robbins & Diamond.

And that typical increase of about 3 percent is roughly 1 percent below the pre-recession average, according to a report from the Society for Human Resource Management (SHRM).

One thing’s for sure: Workers aren’t entirely satisfied with their downsized wage increases. But where do the realities of the economy and the labor market leave employers and staffing firms as they enter 2014 salary negotiations?

Here are eight top takeaways on 2014 salary trends.

Workers begin to feel empowered as job-loss fears abate. Smart employers are moving beyond the assumption that job security will trump all else in 2014 salary negotiations. “I think that’s coming to an end now,” says David Lewis, CEO of OperationsInc, a 40-person HR outsourcing and consulting firm in Norwalk, Conn.. “Employees are more confident, and they’ll be asking for higher increases.”

In real terms, wages have backtracked in recent years. When you include factors such as attrition of more expensive experienced employees, “with a 0.2 percent increase overall, wages are essentially flat” even before they are adjusted for inflation, says Katie Bardaro, lead economist at compensation consulting firm PayScale in Seattle. “So in real terms, wages are down significantly.”

Market forces will temper merit increases. The lean macroeconomics of the 2010s still determine a lot about salary trends. “We expect more of the same modest merit increases, primarily due to low inflation and high unemployment,” says Bruce Elliott, manager of benefits and compensation at Society for Human Resource Management in Alexandria, Va.

IT, healthcare, energy will earn significantly more. A very few industries and occupations will see salary increases significantly higher than average this year. “Wages are very job- and industry-dependent,” says Bardaro. “Tech has been one bright spot. Their wages are still seeing real growth because open positions are much greater than the supply.”

Bardaro also expects less robust — but still greater-than-average — increases in healthcare, due to the ever-increasing demand driven by healthcare reform and the aging population. And the oil and gas industries have seen the most wage growth since 2006:  a cumulative 18 percent.

Accounting/Finance compensation will trend a bit higher than average. “The market for experienced accounting and finance professionals has tightened dramatically in many areas.” So says Robert Half’s 2014 forecast for accounting and finance professionals.

Yet, according to the report on salary trends, all related occupations except a very few will be confined to base-pay increases of 3 percent to 3.9 percent. Only some controllers and internal auditors will be given average increases of 4 percent or a few tenths of a percent more, the Menlo Park, Calif., staffing firm says.

Performance pay will rise with business success. In the wake of the recession, many organizations have permanently stemmed their appetite for risk, and that includes payroll. The limiting of pay hikes reduces this risk, and bonuses based on company performance provide a further hedge.

“Year-end incentives are tied to profitability, and profits are up significantly, so I expect bonus compensation to rise,” says Elliott.

Big salary increases will be for new hires only. “Employers are going to continue to break rules and play with fire by bringing in new talent at salaries higher than tenured employees on staff,” says Lewis. “A lot of employers have gotten used to the idea that they can give existing employees a 2 to 4 percent increase, while bringing in new people with bigger increases.

But this is naïve, because now salary information is typcially posted somewhere, and everyone finds out.”

Hot specialists can earn outsize pay hikes — if they change employers. Some technical and management big wigs in very short-staffed specialties will be able to win outsize salary increases in 2014 — if they’re willing to change employers.

“Merit increases are pretty standard at 2.5 percent to 3 or 4 percent max,” says Steven Raz, managing partner, Cornerstone Search Group a pharmaceuticals and biotech executive search firm in Parsippany, N.J. “But moving to another organization, an in-demand specialist could get a 20 percent to 40 percent increase.” Among the contenders: medical directors, oncologists and healthcare economists.

Young workers will constrain average earnings. Most of us know members of one unfortunate class of workers: unemployed and underemployed Millennials. The huge overhang of these youthful entrants to the job market “will hold down wages for them for the long term,” says Bardaro.

Bottom-line strategy: Reward essential workers. If your company can accomplish only one goal with its 2014 pay increases, here’s what it should be: “We advise companies to keep happy the people who — if they left — the bus would lose it wheels,” says Bardaro.