Economic Turmoil has Serious Pay Budget Impacts

December 16, 2008 ( - A widespread Hewitt Associates survey of large companies taken this month found that 50% made significant changes to their 2009 base salary spending and another quarter are thinking about following suit.

A Hewitt news release said the nation’s economic turmoil and/or related corporate cost pressures prompted the moves that Hewitt said mean more than seven million Americans can expect to see their lowest pay raises in 32 years in 2009. That number, Hewitt said, is only expected to rise after that.

Base salary increases for all employee groups in 2009 are expected to drop 3% for the first time since Hewitt started tracking the data in 1976. Salaried exempt employees will see an average salary increase of 2.5% in 2009, down from 3.8% in July, Hewitt said.

According to the announcement, Hewitt’s data also shows:

  • Executive pay increases will drop from 3.8% to 2.2%, and salaried nonexempt pay increases will decrease from 3.7% to 2.6%. For salaried exempt employees, spending on variable pay as a percentage of payroll is expected to be 11.1% in 2009, slightly lower than the projected increase of 12.1% in July. Variable pay spending for salaried nonexempt employees is expected to decrease from 6.1% to 5.7%. According to Hewitt, more than two-thirds (69%) of companies offer variable pay programs to employees, and another quarter (24%) plan to introduce one in 2009.
  • Not surprisingly, the automotive industry is expected to dole out the lowest pay increases next year, with salaried exempt and salaried nonexempt employees averaging 1.4%, down from 3.5% as originally projected in July. Pay raises for automotive industry executives are projected to be 1.3%, down from 4%.
  • Employees in the education and the banking/finance industries will also see lower-than-average increases next year. Salaried exempt employees in education can expect to see pay raises of 2.3% in 2009, down from 3.5% in July. Pay increases for employees in the banking and finance industries will be 2.9% for salaried exempts next year, compared to 3.9%.
  • Industries that will continue to see above-average salary increases in 2009 include construction/engineering (4.5%), research and development (4%), and pharmaceutical (3.9%).

Hewitt found that while large company employers are definitely taking a hard look at the salary budget part of their cost structures, at the same time, they have not lost sight of the fact that a properly calibrated compensation system can play a key part in attracting and retaining high performing key employees.

That's why many large companies are setting aside a significant chunk of their compensation budgets for variable-pay bonuses, or performance-based rewards that must be re-earned each year.

The survey covered 640 large companies representing almost 13.5 million American employees, Copies of the complete report, "U.S. Impact of Economic Conditions on 2008/2009 Compensation Spending - Pulse II," are available for $250 by contacting Hewitt at (847) 295-5000 or .