Pay raises will be bigger - next year

Employers plan to give workers a 3% raise in 2010 after shrinking salary increases in 2009, according to a survey.

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By Ben Rooney, staff writer

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NEW YORK ( -- Pay raises are expected to rebound next year after being severely stunted by the recession, a new survey showed Wednesday.

Companies are planning median merit increases of 3% for 2010, according to human resources consulting firm Watson Wyatt, which polled 235 large U.S. employers in May.

While that's below the 3.5% raise workers received in both 2008 and 2007, it would be an improvement over the 2% salary increase employers plan to give out this year, Watson Wyatt said.

"This has been a very difficult year for both employers and their workers," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt, in a statement.

Employers have slashed planned pay raises this year to help manage costs as the economy remains mired in one of the worst downturns since the Great Depression.

The 18-month old recession has also taken a toll on workers. The nation's unemployment rate stands at a 26-year high of 9.5%, and is expected to top 10% by year's end.

While many economists think growth could resume later this year, the labor market is expected to remain depressed for some time. But Sejen said there is some good news on the horizon.

In addition to a rebound in 2010 pay raises, many employers plan to reinstate previously cut raises "as planning for an eventual economic recovery continues," she said.

In addition, fewer companies plan to eliminate pay raises next year.

A separate Watson Wyatt survey showed that only 10% of 900 companies polled are planning no pay raises for workers in 2010, compared with 25% this year.

Increased scrutiny: The survey also showed that companies are giving smaller raises to employees who do not meet performance expectations.

The median merit increase for workers who "partially met expectations" in 2009 is expected to be 0.2%, down from 1.5%in 2008.

"With companies operating on limited budgets, employees can expect their performance on the job to come under increased scrutiny," said Laurie Bienstock, U.S. director of strategic rewards consulting at Watson Wyatt, in a statement.

By reducing or eliminating salary increases for subpar workers, employers will be able to reward their best performers, Bienstock added.

Workers who "exceed expectations" this year will receive a median 3.1% increase, while workers who "far exceed expectations" will receive a 4% increase, according to the survey.

Bonus bummer: Not surprisingly, performance bonuses are expected to be dismal this year.

"Bonuses are certainly a casualty of the recession," Sejen said.

The survey showed that 2009 annual incentive awards are expected to be funded at 75%. That's down from 82% in 2008 and 99% in 2007.

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