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November 15, 2007
HR Spending: Base Pay Increases at Lower Rate than Other Priorities
Employers appear to putting less of their HR budget into base pay increases than they are into career development and other critical HR areas, according to a new survey.

For 2008, 46% of responding companies said they will spend more money on training than they did this year, and 51% said they will spend more on career development in 2008 vs. 2007, according to Mercer's 2007 Total Rewards SnapShot.At the same time, just 23% of respondents said they will spend more on base pay increases, and 29% will spend more on annual cash incentive pay. Meanwhile, 14% plan to spend more on healthcare benefits.

"Organizations are striving to balance the employee value proposition by investing more dollars on training and development and less on base pay to attract, retain and engage employees," said Steven E. Gross, global leader of Mercer's broad-based performance & rewards consulting business. "Investments in training and development offer a number of benefits to employers by focusing on career opportunity and the employee experience. It also helps create an 'employer brand' that differentiates them in the war for top talent, while at the same time conveying the organization's values and culture."

In an effort to align pay and performance and make the most of their compensation dollars, companies are segmenting their employees and rewarding the groups differently. The most common criteria, according to the survey, is job level, reported by 55% of companies, followed by geographic location (35%) or product line (27%). The most common differences are in base pay, and opportunity and eligibility for short-term incentives.

"Employers are struggling to determine where to best allocate their limited total rewards resources," Gross continued. "By segmenting their workforce, they can focus their rewards investments on the employee groups that contribute the most to the organization's growth and productivity."

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