By Kate Southam, Editor of CareerOne.com.au

Most employees will have to forgo a salary increase next year as employers target payroll for cost control as they continue to recover from global financial conditons.

Despite some positive reports on increasing job numbers, Mercer’s Market Issues Survey of 287 organisations reveals the rate of salary growth across Australia slowed from 4 per cent, six months ago to 3.5 per cent in July 2009 with further falls predicted.

"The good news for employees is that pay movements are forecast to bottom out to 3 per cent in the next 12 months, as the pressure mounts on employers to compete for the specialist skills that will help to sustain their future growth," claim Mercer researchers.

Martin Turner, Principal within Mercer’s human capital business explained that employers are still focused on managing fixed pay as a central plank of cost reduction strategies in the wake of the global financial slump.

Of those employers surveyed, 28 per cent plan to reduce fixed reward budgets this year and a further 16 per cent were not planning to provide any increase at all. A further 44 per cent said they were  planning to maintain fixed reward spend at current levels over the next 12 months "indicating organisations are wary of reducing reward spend any further".

Mr Turner said while the overall trend showed that organisations were leaning towards either holding or reducing operating budgets there was 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 41 per cent of organisations expect business performance will improve in the 12 months ahead compared to 33 per cent six months ago. Approximately 30 per cent of those surveyed expect further targeted workforce cuts over the coming six months while another 28 per cent were planning to increase the size of their workforce.

“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

Mercer’s survey found "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

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

• Engineering, 6.8 per cent
• Construction, 5 per cent
• Marketing, 4.1 per cent
• Scientific, 3.9 per cent
• Technical, 3.8 per cent

Worst job performers in terms of salary:

• Sales, 3.4 per cent
• Customer Service, 3.4 per cent
• Clerical, 3.3 pr cent
• IT, 2.9 per cent
• Supply and Distribution,  2.8 per cent

Australian pay trends by regions

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

In that same period, South Australia and NSW both saw pay increases of three per cent and Victoria 2.9 per cent.