The Conference Board Annual Salary Increase Budgets Survey, released one week before Labor Day, reports the lowest yearly forecast for company salary budgets since the survey began 25 years ago. The 2010 median forecast salary increase budget is 3.00 percent in all employee categories, down a half percent from the previous year.

Salary increase budgets refer specifically to the pool of money that an organization dedicates to salary increases for the coming year. Generally, it is represented as a percentage of current payroll.

Along with The Conference Board's labor market indicators, "this historic low suggests that, entering this holiday weekend, workers shouldn't be looking forward to much improvement in the labor market," says Linda Barrington, Managing Director of Human Capital at The Conference Board.

Changing market conditions throughout 2009 pushed companies to adjust downward their salary increases as the economy worsened. Comparing what companies originally forecast for their 2009 salary increase budgets and where they report actually expecting to finish the year is revealing. The Conference Board survey reports a full percentage point drop in the medians of the 2009 salary increase budgets in all employee categories except executive, from 3.50 percent to 2.50 percent. But it was the executive category that took the biggest hit – down 2 full percentage points (from 3.50 percent to 1.50 percent).

Across industry categories, Insurance reports the highest 2010 forecasts for salary increase budgets in all employee categories, 3.50 percent, while Communications reports the lowest in all employee categories - 2.50 percent. A median forecast of 2.50 percent is also reported for the salary increase budgets for executives in the Energy/Agriculture industry.

While the median forecast salary increase budget is low, the typical employer is still budgeting for salary increases ahead of inflation in 2010. Suppressed, in part, by slack in production capacity, The Conference Board projects the inflation rate to be 2 percent this coming year.

Definition

Salary increase budgets refer specifically to the pool of money that an organization dedicates to salary increases for the coming year. It is represented as a percentage of current payroll generally; the salary increase budget is calculated using a predetermined total percentage of base pay (excluding overtime, bonuses, etc.). The budget is used for awarding merit or performance increases to individual employees, as well as for pay adjustments such as promotional increases. Salary increase budgets can also include scheduled "step" increases or salary increases that have been pre-determined via individual contracts or collective bargaining agreements.