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Australia
Melbourne, 17 September 2009

• Rate of salary growth slows to 3.5% in July 2009
• War for talent not over - specific talent remains scarce
• Business expectations illustrate emerging dichotomy in human capital planning

While their employers may be feeling slightly more optimistic about the economy, employees shouldn’t expect to receive a pay increase in the coming year with pay movements continuing to decline, according to Mercer’s latest salary survey.

Mercer’s Market Issues Survey of 287 organisations has revealed that in the last six months national salary movements continued on a downward trend. The rate of growth of salaries across the nation has slowed from 4 per cent, six months ago to 3.5 per cent in July 2009, as employers remain focused on containing costs and cautiously ride out the storm.

The good news for employees is that pay movements are forecast to ‘bottom out’ to three per cent in the next twelve months, as the pressure mounts on employers to compete for the specialist skills that will help to sustain their future growth.

Mercer’s survey found that managing fixed pay remains a central cost reduction strategy for a large number of organisations, underpinning the general downward trend in salary movements: with 28 per cent planning to reduce fixed reward budgets this year and a further 16 per cent not planning to provide any increase at all. On the other hand, a further 44 per cent are planning to maintain fixed reward spend at current levels over the next 12 months - indicating organisations are wary of reducing reward spend any further.

Martin Turner, Principal within Mercer’s human capital business, said while the overall trend shows organisations are leaning towards either holding or reducing operating budgets there is a division emerging between those who are well-placed to thrive and those who are struggling to survive.

“Organisations that have retained the required skills and workforce numbers to support their growth, when the economy does improve, will be the ‘thrivers’,” said Mr Turner.

“Those that have been able to balance short-term priorities with long-term needs by targeting cost containment measures to specific areas of the workforce, as opposed to across the board cuts, will have set themselves apart for future growth,” he said.

Mercer’s survey also found expectations about business performance illustrate an emerging dichotomy in the Australian market: 41 per cent of organisations expect business performance will improve in the 12 months ahead, an improvement given that 33 per cent felt the same six months ago. However, approximately 30 per cent of organisations indicated they would make further targeted workforce cuts over the coming six months while another 28 per cent are planning to increase the size of their workforce particularly in areas containing industry specialist roles.

Mr Turner said these results indicated there would be an uneven road to recovery amongst Australian organisations.

“Organisations less confident about the year ahead appear to be continuing with workforce reductions, while on the flip side, a number of organisations are still hiring and this will drive further constraints in the labour market for certain skills,” Mr Turner said.

“The war for talent is far from over and cutting too deep in terms of salaries and people now could be a mistake.

“Those whose performance is stable or improving are showing signs of being able to flex their muscles on long-term workforce planning strategies, while those who have a poor or worsening performance outlook are having to rein in spending more dramatically. These organisations will struggle to keep up with competitors - or even survive - if they fail to get the basics right now,” he said.

However, despite an uneven road to recovery ahead, both camps have maintained or increased their focus on investing for future-growth.

Mercer’s survey found that organisations are making sacrifices but are also prioritising key areas for human capital investment with 82 per cent of organisations focussed on building the organisations’ future capability in the critical areas of leadership development and talent management and succession planning. It found they are reducing spend in other human capital areas to part-fund this shift in priorities.

Mr Turner warned organisations that simply benchmarking against peers, in terms of salary movements, is no longer enough.

“Organisations will need to work harder at maintaining the loyalty of employees in an environment where certain talent remains scarce, as well as increasingly being required to manage costs and keep driving productivity,” he said.

Sector pay trends:

High demand for specialist skills will continue to apply pressure on remuneration budgets as employers compete for critical skills.

The top five job families still able to attract a premium above the general market median include:

Worst performers:

Regional pay trends:

Salary movements in July 2009 increased beyond the national median fixed pay movement of 3.5 per cent in Western Australia (3.8%) while salary growth was in-line with the national median in Queensland, coming in close behind WA at 3.5 per cent.

Meanwhile Australian states less exposed to the demand for mining and construction workers received pay increases below the national median with South Australia and New South Wales both experiencing pay increases of three per cent and Victoria not far behind with salaries rising 2.9 per cent over the past six months.

“The softening of economic growth has seen a convergence of the two speed economy. The differentiation between Western Australia and Queensland relative to the rest of Australia is now much less pronounced than during the times when the mining and construction sectors were running hot,” Mr Turner said.

“As the economy picks up again, it is expected that we will see a return to the widening of state based remuneration differentials,” he concluded.

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