Salary Increases Expected to Outpace Inflation

HR Daily News December 30, 2002

Despite continuing economic uncertainty, employees in most countries can expect their pay to increase next year by 1 to 3.5 percent above inflation, according to the a report by Mercer Human Resource Consulting.

U.S. employers predict pay increases of 3.9 percent next year, compared with Canadian employers who expect a 3.3 percent increase. Inflation in these countries is anticipated to be 2.3 percent and 2.5 percent, respectively.

The report reveals distinct differences in pay and inflation trends in over 60 countries across various regions of the world. In the majority of countries, including Australia, U.K., and U.S., pay increases are predicted to hover above the annual inflation rate.

However, a handful of countries can be found at the extremes. For example, in Venezuela pay increases are expected to be around 7 percentage points lower than inflation, while in Bulgaria pay is predicted to rise almost 11 percentage points above inflation.

"Despite some optimism about economic recovery, companies remain cautious in setting their salary budgets and are reluctant to commit to high increases in the current uncertain times," says Gareth Williams, an international consultant in Mercer's Chicago office.

Mercer's Global Compensation Planning Survey Report examines economic, employment, and pay trends in more than 60 countries worldwide. Data on projected pay come from surveys of large employers, while inflation data is mostly collected from the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD).

"Demand for talented staff will be a major factor influencing the extent of any salary and wage rises in 2003. Businesses more likely to feel the effects of an increase will be those in high growth industries with limited skilled resources,” says Mercer Principal Bruno Cecchini. "Companies can no longer afford to match market movements purely when putting together remuneration budgets; they must have a firm understanding of what they can actually afford. It is critical for companies to implement a clear performance-oriented reward structure for employees," he says.