What Is an Appropriate Annual Salary Increase?
Job market conditions and company budgets affect salary increases. Therefore, there is no way to determine an appropriate annual salary increase because those factors fluctuate. However, you may be able to gain some influence over your pay raises by making yourself valuable to your company through top-notch job performance.
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Employer Budgets
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Salary increases are unpredictable because they're linked to how much of a company's annual budget is dedicated to pay raises. The Conference Board research association estimated that U.S. employers generally committed just 2.8 percent of their budgets to salary increases in 2010. At that rate, pay raise budgets were just barely keeping up with the increase in the cost of living, since the board's estimated inflation rate for the year was at 2.6 percent. The board also indicates that 2010 marked the first time in more than 20 years that the average increase in employers' salary budgets fell below 3 percent.
Job Market
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Compensation professionals usually keep salary increases in line with a rise in inflation, according to Conference Board program director John Gibbons. However, companies also base salary increases on what's happening in the job market. Gibbons indicated that company pay-raise budgets reflect a near-zero increase as they did in 2010 when employers determine that salaries in most industries won't rise significantly. In such cases, employers may maintain low budgets for pay raises, regardless of how much the cost of living rises due to inflation.
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Salary Increases
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Employee pay raises may remain small through 2012. The Culpepper and Associates survey company estimates that U.S. workers' salaries will rise about 3 percent in 2012, which reflects a slight increase over the estimated 2.9 percent rise in salaries in 2011. Culpepper based the increase for 2012 on a survey that included salary budget data from 1,065 organizations across 95 countries.
Job Performance
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Your job performance may be of particular importance in earning a salary increase in the future, especially if your employer is on a tight budget. Culpepper warns companies in its survey data that increased global competition for talented employees and smaller salary budgets make it critical to manage pay increases wisely and to avoid across-the-board salary hikes. Many employers may be following that advice. Culpepper indicates that most U.S. companies aren't rewarding low performers, but they are budgeting 5 percent salary increases for top-performing employees, along with 3 percent pay raises for average performers.
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