Hewitt Survey Reveals 2010 Compensation Budgets Dip Slightly from Original Projections, But Planned Salary Freezes & Reductio...
November 19 2009 - 9:00AM
Business Wire
Despite tighter corporate budgets and continued pressure to
mitigate costs, a new survey from Hewitt Associates, a global human
resources consulting and outsourcing company, reveals promising
news for cash-strapped workers. Unlike last year, most U.S.
companies are keeping their compensation budgets intact for 2010,
making just minimal changes to salary increases and employee
bonuses. In addition, the number of companies planning to freeze or
reduce salaries has declined dramatically compared to last year, as
companies cautiously anticipate signs of an economic recovery.
Hewitt’s survey of 555 large employers reveals that base salary
increases for salaried exempt, salaried nonexempt and nonunion
hourly employees are expected to be 2.5 percent in 2010, down
slightly from companies’ original projections of 2.6 percent.
Executive employees are now projected to receive increases of 2.4
percent, down from 2.5 percent, and union workers can expect an
increase of 2.3 percent, down from 2.6 percent. While 2010 base
salary increases have dropped slightly from companies’ original
projections, these changes are much less drastic than the
reductions employers made at this time last year. Hewitt’s research
showed that in October 2008, employers planned to reduce base
salary increases for all employee groups by at least 1 percentage
point over their original projections. Actual pay raises for
workers in 2009 were 1.8 percent for salaried exempt, 1.4 percent
for executives and 2.2 percent for union employees.
Also encouraging, Hewitt’s survey shows dramatic decreases in
the number of companies planning salary freezes or salary
reductions in 2010. While the challenging economy compelled nearly
half (48 percent) of companies to freeze salaries in 2009, just 17
percent are considering doing so in 2010. No companies in Hewitt’s
survey anticipate salary reductions in 2010, compared to 10 percent
in 2009.
Variable pay budgets, or performance-based awards that must be
re-earned each year, are also expected to shift slightly for most
employee groups in 2010. For example, spending on variable pay as a
percentage of payroll for salaried exempt workers is now budgeted
to be 11.2 percent, down from companies' original projections of
11.7 percent. However, variable pay bonuses for nonunion hourly and
union employees are projected to rise from 6.4 percent and 5.4
percent to 6.5 percent and 6.0 percent, respectively.
Original 2010 salary increase
projections
Updated 2010 salary increase projections
Original 2010 variable pay
projections
Updated 2010 variable pay
projections
Salaried exempt 2.6 % 2.5 % 11.7 % 11.2 % Executives 2.5 % 2.4 %
N/A N/A Salaried nonexempt 2.6 % 2.5 % 6.8 % 6.8 % Nonunion Hourly
2.6 % 2.5 % 6.4 % 6.5 % Union 2.6 % 2.3 % 5.4 % 6.0 %
“Many companies are still finalizing
their 2010 compensation budgets, but the good news is that most
don’t seem to be taking the same types of drastic cost-cutting
measures we saw at this time last year,” said Ken Abosch, head of
Hewitt’s North American Broad-Based Compensation Consulting
practice. “As organizations remain under enormous pressure to hold
down fixed costs, we’ll continue to see an emphasis on variable pay
approaches. These types of performance-based awards give companies
more flexibility, allowing them to adjust payout amounts based on
business and personal performance, without being tied to fixed
costs associated with base salary increases.”
According to Hewitt, variable pay spending as a percentage of
payroll has almost doubled in 15 years, from 6.4 percent in 1994 to
11.2 percent in 2009. Of companies that offer a variable pay
program, almost two-thirds (64 percent) now have an individual
performance component and at least 68 percent plan to increase
employee eligibility for these programs in 2010.
Re-examining Compensation Program Designs in Light of the
Economy
According to Hewitt, the current economic environment provides
companies with an ideal opportunity to review their compensation
programs and ensure they effectively reward strong performance and
business results.
Hewitt’s survey found that while most companies tie salary
increases (88 percent) to some mix of individual and business
performance, few companies go far enough with these programs to
differentiate high performers from other workers. In 2009, for
example, low-performing salaried exempt workers—presumably workers
who did not meet their performance goals—still earned merit
increases of 1.6 percent, compared to 2.7 percent for average
performers and 4.5 percent for top performers.
“It’s clear that many organizations struggle to differentiate
performance messages around base salary increases. But the current
economic climate provides a rare window of opportunity for
companies to fix their past mistakes by moving to a more effective
compensation design approach,” said Abosch. “Pay programs should be
designed in ways that reward high performers, high potentials, and
employees with critical skill sets. This is particularly critical
as companies work to retain key talent during the economic
recovery.”
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations
around the world with expert human resources consulting and
outsourcing solutions to help them anticipate and solve their most
complex benefits, talent, and related financial challenges. Hewitt
works with companies to design, implement, communicate, and
administer a wide range of human resources, retirement, investment
management, health care, compensation, and talent management
strategies. With a history of exceptional client service since
1940, Hewitt has offices in more than 30 countries and employs
approximately 23,000 associates who are helping make the world a
better place to work. For more information, please visit
www.hewitt.com.
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