HEW Hewitt Associates

For the seventh year in a row, U.S. workers can anticipate flat base pay raises, according to new research by Hewitt Associates, a global human resources consulting and outsourcing company. However, variable pay levels are expected to fall slightly for the first time since 2003. Hewitt�s survey of 1,073 large organizations reveals that base salary increases for salaried exempt employees1 will inch up to just 3.8 percent in 2009, compared with 3.7 percent this year and in 2007. Executive employees are projected to receive increases of 3.9�percent, compared with 3.7 percent for salaried nonexempt2 and nonunion hourly employees, and just 3.3 percent for union employees. Variable pay bonuses�or performance-related awards that must be re-earned each year�are projected to dip slightly to 10.6 percent in 2009, down from 10.8 percent this year and 11.8 percent in 2007. Despite the economic downturn, only 2 percent of organizations froze salaries in 2008 and only 1 percent plan to do so in 2009. �While the relatively flat projected salary increase may not seem positive, the news is actually promising,� said Ken Abosch, leader of Hewitt�s North American Compensation Consulting business. �With the current economic climate, we would anticipate seeing lower base pay raises, smaller variable pay awards and more companies freezing wages. Our findings indicate that companies are making small corrections, but they aren�t panicking�they�re staying the course and remaining relatively stable compared to prior economic downturns.� Even though the news isn�t all bad, the economy isn�t far from the minds of many employers. Of the 15 percent of companies planning to reduce their base salary budget in 2009, nearly two-thirds (64 percent) said they will do so because of concerns about the economy. Almost half (48 percent) anticipate that their organizations will undergo cost reductions, and 20 percent cited lower budgets among comparator groups as the reason for smaller budgets. Variable Pay Remains Popular With 25 percent of the workforce nearing retirement age companies are increasingly concerned about the growing talent shortage. In fact, more than two-thirds (68 percent) reported problems attracting and retaining employees this year, up from just 46 percent last year. As a result, organizations continue to turn to variable pay programs as a way to motivate their top performers and attract new talent. A majority of companies (90 percent) have at least one type of broad-based variable pay plan. However, while more and more companies have variable pay programs, spending on variable pay as a percentage of payroll was down slightly in 2008 to 10.8 percent and is anticipated to remain slightly depressed at 10.6 percent in 2009. Among the various types of awards, signing bonuses are the most common offered by employers (65 percent), followed by business incentives3 (63�percent), special recognition awards4 (56 percent), individual performance awards5 (41 percent) and retention bonuses (39 percent). �Even though the variable pay outlook hasn�t changed substantially for 2009, remember that these budgets are created based on projections for next year�s performance,� explained Abosch. �Flat variable pay projections for 2009 actually indicate that organizations see a brighter economic picture ahead, which should be encouraging for workers.� 2009 Salary Increases by Industry and City Hewitt�s study shows that salaried exempt workers in some major U.S. cities and industries should realize salary increases somewhat higher than the national average projections for 2009, including Washington, D.C. (4.3 percent), Houston, Denver, Los Angeles and New York City (all 4.0 percent). The cities projected to have the lowest increases next year are Philadelphia and San Francisco (3.5 percent), and Boston, Milwaukee and Minneapolis/St. Paul (all 3.7 percent). See attached chart for more information. The industries experiencing above-average salary increases in 2009 include accounting/consulting (4.6 percent), energy (oil/gas) (4.5 percent), and construction/engineering (4.5 percent). The lowest industry average salary increases are projected to be forest and paper products/packaging (3.0 percent) and rubber/plastics/glass (3.3 percent). �With the struggling housing market, it may seem counterintuitive for the construction industry to be enjoying higher-than-average salary increases. However, this group actually represents many large construction and engineering companies with long-term government contracts,� said Abosch. �These fixed, long-term contracts are not typically impacted by short term economic changes.� About Hewitt Associates For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programs to millions of participants and retirees, on behalf of more than 300 organizations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewitt.com. 1 Salaried exempt: All non-executive salaried employees for whom overtime pay is not required by the Fair Labor Standards Act (FLSA). 2 Salaried nonexempt: Salaried employees for whom overtime pay is required by FLSA. 3 Business incentives: Rewards employees for a combination of financial and operational performance measures for the company, business unit, department, plan and/or individual performance. 4 Special recognition: Acknowledges outstanding individual or group achievements with small cash awards or merchandise (e.g., gift certificates). 5 Individual performance: Rewards based on specific employee criteria.