Hewitt Finds Variable Pay Levels Expected to Fall

September 2, 2008 (PLANSPONSOR.com) - New research from Hewitt Associates finds pay raises for 2009 are expected to be mostly the same as increases U.S. workers received in 2008.

According to a press release, Hewitt’s survey of 1,073 large organizations reveals that base salary increases for salaried exempt employees will inch up to just 3.8% in 2009 from 3.7% this year and in 2007. Executive employees are projected to receive increases of 3.9%, while projected increases are 3.7% for salaried nonexempt and nonunion hourly employees and just 3.3% for union employees.

Of the 15% of companies planning to reduce their base salary budget in 2009, nearly two-thirds (64%) said they will do so because of concerns about the economy. Almost half (48%) anticipate that their organizations will undergo cost reductions, and 20% cited lower budgets among comparator groups as the reason for smaller budgets.

Despite the economic downturn, only 2% of organizations froze salaries in 2008, and only 1% plan to do so in 2009.

Variable pay bonuses – performance-related awards that must be re-earned each year – are projected to dip slightly to 10.6% in 2009, down from 10.8% this year and 11.8% in 2007. However, with 25% of the workforce nearing retirement age, companies are increasingly concerned about the growing talent shortage (68% reported problems attracting and retaining employees this year, up from 46% last year), and they continue to turn to variable pay programs as a way to motivate their top performers and attract new talent.

A majority of companies (90%) have at least one type of broad-based variable pay plan, according to Hewitt’s press release. Among the various types of awards, signing bonuses are the most common offered by employers (65%), followed by business incentives (63%), special recognition awards (56%), individual performance awards (41%), and retention bonuses (39%).

Hewitt's research indicates that salaried exempt workers in some major U.S. cities should realize salary increases somewhat higher than the national average projections for 2009, including Washington, D.C. (4.3%), and Houston, Denver, Los Angeles and New York City (all 4%). The cities projected to have the lowest increases next year are Philadelphia and San Francisco (3.5%), and Boston, Milwaukee, and Minneapolis/St. Paul (all 3.7%).

The industries projecting above-average salary increases in 2009 include accounting/consulting (4.6%), energy (oil/gas) (4.5%), and construction/engineering (4.5%). The lowest industry average salary increases are projected to be forest and paper products/packaging (3%) and rubber/plastics/glass (3.3%).