Employers in and around the District allocated 3 percent more for salaries in 2014 than in the previous year, keeping ahead of the region’s 1.7 percent inflation rate, according to new employer surveys from the Human Resources Association of the National Capital Area.
The increase kept the Washington area on pace with the rest of the country. However, the local economy continues to trail other metropolitan areas in terms of generating new jobs, and those that do get added tend to be at the bottom end of the wage spectrum.
Employers appear to be “very much in a wait-and-see mode,” in making their salary decisions, said Angelo Kostopoulos, president of Akron Inc., the company that conducts the survey on behalf of HRA-NCA. With the economic recovery here still sputtering, “they don’t have the flexibility of resources that they used to have, so they have to be very cautious looking forward.”
Compensation decisions can be tricky when average increases are so modest. Do you reward star performers with big raises and give little to everyone else, or treat staffs more equitably?
A separate employer survey by Towers Watson suggests companies aren’t doing a good job of rewarding high performers or communicating their pay decisions to employees. In a sample of 337 large employers, Towers Watson’s 2014 Global Workforce Study found that only one half of employees felt they were paid fairly compared to other people in similar positions at their organization, and less than half reported a clear link between pay and performance.
“Simply offering a competitive salary and annual bonus is not enough to win the war for talent,” said Laury Sejen, managing director of rewards at Towers Watson. “Employees believe that employers are falling short in how pay decisions are made and that there is much room for improvement.”
That’s especially true at companies that have made cuts in other forms of compensation, such as health and retirement benefits.
But unemployment is still high enough that companies have a broad labor pool to choose from, giving employers leverage in salary negotiations. As a result, payroll budgets still haven’t returned to their pre-recession trajectory and it does not appear this will happen any time soon.
Businesses told HRA-NCA they expect a similar 3.1-3.2 percent increase for 2015, and the survey’s prediction for the next year’s salaries has generally been accurate in the past.
A resurgence in the nonprofit industry?
HRA-NCA conducts the surveys each year through electronic forms given to participating businesses based in the D.C. region. This year’s survey covers 318 businesses with an average size of 1,135 employees across 558 jobs. Rather than asking about raises given to specific employees, the survey captures payroll budget increases. That means the raise could have been given to existing employees, or to the people hired behind them.
According to the new pay survey, the industries with the strongest salary increases across the board were associations, hospitality, transportation and services, and the government sector.
However, the industry averages can mask what is happening inside a so-called “job family” within an industry.
For instance, salaries at nonprofits declined by 1 percent, according to the survey. But jobs specific to the nonprofit industry, such as grant managers and fundraisers, saw salary increases of 3.7 percent, the most of any industry-specific job family behind manufacturing. Individuals associated with attracting and retaining grant funding did particularly well: Entry-level development professionals saw their compensation packages jump by 6 percent, and salaries for higher-level grants managers increased 6.4 percent.
Human resource experts note that this could be an early sign of a resurgence in the industry — the first since the recession.
The 2008 to 2009 period was “really brutal for them, but they’re probably looking, after a few years in the desert, to retain staff and attract staff. They are probably in a rebuilding mode,” said Bruce Elliott, manager of compensation and benefits at the Society for Human Resources Management.
Industry representatives say hiring and pay decisions are driven by the need for specific skills in navigating the grant funding pipelines and soliciting donations. Nonprofits rely on a variety of funding sources for their revenue, but private donations and government contracts are among the largest. While government contracts are still in short supply, donations are beginning to rebound for the first time since the recession, prompting many nonprofits to invest more heavily in people who are adept at soliciting funds.
“It’s easier for people to find out about nonprofits, largely because of social media, so there is pressure on individual nonprofits to stand out a little more,” said Rick Cohen, a spokesman for the National Council of Nonprofits. “Having someone who knows how to navigate the grant system is really important.”
People who work externally with donors to build funding pipelines have particularly high turnover, and nonprofits are increasing salaries in order to attract and retain them. Deron Lehman, a spokesman for the National 4H Council, an association for national organizations that provide youth development services, says the 4H Council is responding to these pressures through better benchmarking, or monitoring what salaries are being paid by other nonprofits so they can bring pay up to a competitive level.
Nonprofits are required to disclose salaries for certain individuals high up in the organization, which means high-level employees are able to constantly monitor what their counterparts at other organizations make. Mark Graham of CEO Update, a publication that covers association news and executive careers, says this creates an added pressure at the top to keep salaries and bonuses competitive.
So salaries are middling. But what about job growth?
While salary increases appear to be keeping pace with the rest of the country, D.C. is not doing as well on creating new jobs. The Washington area added fewer jobs from August 2013 to August 2014 than every major metropolitan region except Detroit.
And the Washington area has effectively been in a recession for the past two years, with economic output declining slightly in 2012 and again in 2013.
“The big picture, regardless of salary increases or decreases, is that the overall economy of the Washington metro area is flat or declining in total output value,” said Stephen S. Fuller, an economist at George Mason who studies the local economy. “The loss of federal spending and the absence of a sufficiently strong private export sector to take up the slack is the problem.”
In those sectors where the local economy has added jobs, most growth has occurred at the bottom of the wage spectrum. The George Mason Center for Regional Analysis estimates that the jobs added since the recession contribute only half the economic value of the jobs lost in terms of overall productivity. And raises were larger at the top half of the managerial hierarchy, with managers at all levels doing substantially better than those at the bottom. Those in the middle of the hierarchy fared the worst, with entry-level staff getting larger pay increases than those a few levels above them.
When it comes to pay, Kostopoulos said many business leaders are still leery of overcommitting themselves: “People at the top are saying, ‘We’ve come a long way in the last four years,’ but there are other signs that we need to be a little more cautious.”