Planned Salary Freezes and Cuts Drop for 2010

November 19, 2009 ( - A new survey from Hewitt Associates reveals that 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, according to a Hewitt news release, 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% in 2010, down slightly from companies’ original projections of 2.6%. Executive employees are now projected to receive increases of 2.4%, down from 2.5%, and union workers can expect an increase of 2.3%, down from 2.6%.

Hewitt notes that 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 in October 2008 showed 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% for salaried exempt, 1.4% for executives, and 2.2% for union employees.

While the challenging economy compelled nearly half (48 percent) of companies to freeze salaries in 2009, the latest study reveals just 17% are considering doing so in 2010. No companies in Hewitt’s survey anticipate salary reductions in 2010, compared to 10% in 2009.

Variable pay budgets, or performance-based awards that must be re-earned each year, are expected to shift slightly for most employee groups in 2010, according to Hewitt Associates' Salary Increase Survey.

Spending on variable pay as a percentage of payroll for salaried exempt workers is now budgeted to be 11.2%, down from companies' original projections of 11.7%. However, variable pay bonuses for nonunion hourly and union employees are projected to rise from 6.4% and 5.4% to 6.5% and 6%, respectively.

Hewitt noted in its news release that variable pay spending as a percentage of payroll has almost doubled in 15 years, from 6.4% in 1994 to 11.2% in 2009. Of companies that offer a variable pay program, almost two-thirds (64%) now have an individual performance component and at least 68% plan to increase employee eligibility for these programs in 2010.

Hewitt’s survey found that most companies (88%) tie salary increases to some mix of individual and business performance. In 2009, low-performing salaried exempt workers earned merit increases of 1.6%, compared to 2.7% for average performers and 4.5% for top performers.