Q: Assuming employees are meeting the requirements of their position, what are the new standards of annual salary increases (percentage-wise)? Also, what happens to long-term employees who are earning beyond the position's salary range, because they steadily received 4 percent increases and are now almost "overpaid"? Do they stop getting raises?
A: Each year, salary survey companies ask employers to tell them how much their merit budgets will be for the upcoming year. Most companies don't know what their merit budgets will be until sometime in the fall. Then they report those merit budgets to the survey companies. Recently, Salary.com has seen some decrease in the rate of salary increases, more in the form of lower offers to new hires than in reduced budgets for merit increases, which won't appear for a few months.
The way a company handles its long-term employees normally depends on its overall compensation strategy. If a company's philosophy is to pay a competitive wage and reward high performers, then it is less concerned with whether someone is a long-term or a short-term employee. Companies normally pay the average or median market rate for employees who are fully proficient in their jobs. If an employee's performance is well above market, an employer will probably pay above the median or average market rate.
Some employees are high achievers because they have been performing a job for quite some time. Generally, companies don't want to pay such employees more than 25 to 30 percent above market because they know they can find someone to perform the same function for less money. However, if a company wants to reward its high performers whose base salaries are well above market, it can offer them lump-sum payments rather than increasing their base pay. This way, companies still reward employees who are doing a great job without increasing their fixed costs.