Pay Raises Up Next Year: Hewitt

September 3, 2002 ( - US workers can look forward to some decent pay increases next year, particularly when still nonexistent inflation is taken into account.

Hewitt Associates 26th Annual “U.S. Salary Increase Survey” indicates that average salary increases for 2003 are projected to be 3.9% for salaried exempt employees, 3.8% for salaried nonexempt employees and 3.8% for nonunion hourly workers.

Executives look to fare even better, with an estimated 4.1% increase, according to Hewitt, which canvassed 1,045 companies.

Better than Before

The 2003 projected increases are slightly higher than this year’s, which saw an average increase of:

  • 3.6% for salaried exempt employees
  • 3.5% for salaried nonexempt employees
  • 3.5% for nonunion hourly workers
  • 3.8% for executives.

However, Hewitt notes that the rate of increase is down slightly from 2001, when base salary increases were 4.3% for salaried exempt employees, 4.2% for salaried nonexempt employees, 4.0% for nonunion hourly workers and 4.5% for executives.

Freeze “Out?”

Perhaps more significantly, while one in ten surveyed organizations reported instituting a salary freeze in 2002, just 1% are contemplating this type of action in 2003.

The Hewitt study found that workers in some cities will fare even better than the averages. 

For example, pay increases for salaried exempt employees in Atlanta are projected to be 4.0% in 2003.  Other “hot spots” include Boston (4.0%), Houston (4.6%), Milwaukee (4.4%), San Francisco (4.0%) and our nation’s capital, where 4.2% increases are anticipated.

Closer to the average are cities where salaried exempt workers are likely to enjoy smaller increases, including Chicago (3.9%), New York (3.8%), Dallas (3.8%) and Philadelphia (3.5%)  percent).

Variable Views

Hewitt noted that variable compensation programs continue to enjoy strong support among employers.  I

In fact, according to Hewitt, 80% of surveyed organizations currently have at least one type of variable pay plan in place, roughly equal to the 81% in 2001, and much more prevalent than the 59% reported in 1995. 

Additionally, company spending on variable pay for salaried exempt employees averaged 10.5% of payroll this year, and is projected to average 10.9% of payroll in 2003.

According to Hewitt, the most common types of variable pay plans in 2002 were:

  • 55% – business incentives, awarded for a combination of financial and operational measures for company, business unit, department, plant and/or individual performance
  • 52% – special recognition, which acknowledges outstanding individual or group achievements with small cash awards or merchandise (e.g., gift certificates)
  • 47% – individual performance, where rewards are based on specific employee performance criteria
  • 40% – stock ownership, where stock is awarded to workers who meet specific goals.

In its “Timely Topic Study on 2002 Variable Pay,” Hewitt surveyed 174 US employers and found that nearly two-thirds (62%) said they didn’t make adjustments to their Special Recognition Awards, 52% made no changes to their Stock Option Awards, 41% didn’t alter their Individual Performance Awards, and nearly a third (32%) didn’t adjust their Business Incentive Awards. 

Of those firms that did institute changes, Hewitt notes that the main focus was on communications and performance measurement.  Specifically:

  • 26% added to or enhanced their communications efforts around Stock Option Awards
  • 24% did the same with Business Incentive Awards
  • 21% did so around Individual Performance Awards
  • 15% increased their communications around Special Recognition Awards.

The survey also noted that 32% of the organizations tightened measures around performance criteria for their Business Incentive Awards, while 24% did so with their Individual Performance Awards.  Some 10% tightened measures around Stock Option Awards and 6% did so with Special Recognition Awards.