Salaries Nudge Upward Again Next Year

NEW YORK (TheStreet) -- Economists watch pay rate adjustments at U.S. companies closely, as the adjustments hint at the health of the economy.

So the annual payroll outlook from WorldatWork deserves a close look from economists and from employees, and this year’s outlook is in positive territory, with the forecast showing the average worker paycheck for 2015 rising by 3.1%.

With this year's numbers showed payroll numbers rising by 3%, the report continues a five-year run-up in payroll budgets after 2009’s all-time low of 2.2%.

It's good for payroll budget numbers to stay well ahead of the rate of inflation and its threat to consumer spending, and right now the inflation rate stands at 2.1% -- so U.S. workers are seeing paychecks stay ahead of inflation, albeit barely.

The reasons companies beef up employees’ paychecks can change too. It’s not all about keeping employees happy and in place, although those are big issues too. The real issues are more about the overall economy.

"Salary increase budgets will likely remain close to the 3% mark until market forces require employers to raise wages more aggressively," says Alison Avalos, research manager for WorldatWork. "Recovering from the recession is no longer driving employers’ salary budget planning. Current salary budget increase amounts are less about a recovery from widespread pay freezes from a few years back and more about the current marketplace not demanding much growth in the size of pay increases for employees." 

Other takeaways from the WorldatWork study include:

  • 90% of companies usually increase payroll budgets by between 2% and 4%. Only between 2% and 4% of companies cut their payroll budgets.
  • Eight major U.S. cities reported declines in payroll budgets from 2013 to this year: Detroit, Miami, Minneapolis, Pittsburgh, Portland, Ore., San Diego, St. Louis and Tampa, Fla.
  • Three cities (two of them in California, where the cost of living is higher), report payroll budgets above 3.1%: Houston, Los Angeles and San Francisco.

Companies are getting creative with their compensation strategies. "Organizations know that in order to retain top talent, they need to reward and motivate these important employees," Avalos says. "They are doing so by differentiating salary increases and increasing the use of bonus programs."

According to WorldatWork, 74% of companies are using performance programs to allocate higher pay. In addition, hiring bonuses, spot bonuses and project completion bonuses are all on the upswing.

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