What raises, bonus will look like in 2013

It’s the question everyone wants the answer to right now (supervisors, employees and CFOs): How big of a raise will be given out next year?

We have some new benchmarks for you, courtesy of Towers Watson. The firm just released its salary predictions for 2013.

As departments begin their budgeting process, there’s no better time for this intel to help you see how your company’s compensation plans compare to your peers’ (and maybe even your competition’s).

Average 2013 increase: 2.9%

“Modest” would be the best way to describe the salary increases your peers plan to bestow on their people next year.

The average salary increase for non-management employees will be 2.9% for 2013. That’s up ever-so-slightly from this year’s 2.8% boost and the 2.7% gains to the paychecks in 2011.

But the way that money will be divided will swing wildly depending on how people perform. According to Watson:

• Employees with the highest performance ratings will get 4.7%
• Middle-of-the-road performers should see an extra 3.2%, while
• Those pulling up the back of the pack will still get something, but just 1.3%.

Those are some great yardsticks to help you decide how to distribute salary budget dollars to your own people.

But there’s another piece of the compensation equation that the folks at Towers Watson are cautioning you about.

Bonuses may backfire

You’ll want to look closely at your company’s incentive-based pay program. Because there are some concerns it may not be working the way most of your peers intend it to.

Bonuses have been leaned on much more heavily in recent years, as companies have kept standard pay raises on the conservative side.

But for the second year in a row, bonus programs are expected to be underfunded – at 93% of target for 2013. That continues pattern seen this year, where programs were at 95% of target.

So what’s behind the phenomenon?

Your peers are raising the bar higher and higher for just what will earn those budget dollars. But dangle the carrot too out of reach and your company could end up demotivating people instead of spurring them to greater heights the way the program is intended to.

That’s something you want to address with all supervisors before they set out standards for the coming year with their staffs.

If you plan to keep your bonus standards as high as they’ve been — or maybe even push a little higher? — then make sure supervisors are doing enough to distinguish between their superstars and the rest within the salary dollars you do have, no matter what the number.