PAY SCALED – Hewitt Finds Variable Pay More Prominent

August 31, 2000 (PLANSPONSOR.com) - Variable pay continues to expand its popularity among employers, with 78% of surveyed companies now offering at least one variable pay program this year, nearly twice as many (47%) as a decade ago.

The 24th annual Hewitt Associates US Salary Increase Survey also found that spending on these programs averaged 9.7% of payroll in 2000.

Spending on these programs is expected to average 10.2% of payroll in 2001. Variable compensation was defined as a performance-related award that must be re-earned each year and does not permanently increase base salary.

“Variable compensation is viewed as a ‘win-win’ by both employers and employees,” said Ken Abosch, principal and motivation content leader for Hewitt Associates. “For an employer, variable compensation is not a fixed cost, but rather a self-funding plan that pays out awards when specific business, individual or group goals are achieved. From the employee perspective, variable compensation means that pay can increase dramatically as goals are met.”

Trend Lines

According to the Hewitt survey, the most common types of variable pay plans include:

  • Special Recognition – acknowledges outstanding individual or group achievements with small cash awards or merchandise (e.g., gift certificates);
  • Individual Performance – rewards based on specific employee performance criteria;
  • Business Incentives – awards employees for a combination of financial and operational measures for company, business unit, department, plant and/or individual performance;
  • Stock Ownership – rewards stock to professionals who meet specific goals.

The Hewitt survey found that moderate salary increases are offset by the steady growth in companies implementing variable compensation plans.

Average salary increases for next year are projected to be:

  • 4.5% for executives
  • 4.4% for salaried exempt employees
  • 4.3% for salaried nonexempt employees
  • 4.1% for nonunion hourly workers

Hewitt’s study also shows that 82% of employers feel most challenged in finding – and retaining – Information Technology professionals, suggesting the potential for even higher salary increases for this area.

The survey covered 856 organizations nationwide.

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