Amid signs of a strengthening economy and a growing job market, companies are pulling their compensation programs out of the deep freeze, according to the 2005/2006 U.S. Compensation Planning Survey conducted by Mercer Human Resource Consulting in New York City. The study examined pay practices at more than 1,300 companies with a total of close to 13 million workers. Only 2 percent of respondents report that their organization has a salary freeze in place for one or more segments of its employee base. That's down from 16 percent in 2002. "The era of salary freezes is over," says Steven E. Gross, leader of Mercer's employee rewards business in the United States.

But there's no sign yet that salaries are poised for liftoff. On average, employers plan to grant increases of just 3.6 percent this year, barely more than last year's average of 3.5 percent. And next year will be no better, with the projected average increase flat at 3.6 percent, according to the report. But pay raises may take other forms. "Still reluctant to increase base salaries, companies are willing to reward performance through incentives and bonuses, especially as the job market becomes more competitive and the risk of losing key talent is top of mind," notes Gross.

Holistic approaches to compensation management continue to gain ground, according to the survey. "We're finding that leading companies are taking a total rewards approach to compensation," reports Gross. "They're addressing pay issues from three perspectives: what employees value, what companies need in terms of skills and capabilities to grow the business, and affordable and sustainable costs. A holistic approach -- one that acknowledges the needs of both the business and its employees -- is critical to maintaining a competitive advantage in the marketplace."