Benefits November 14, 2001

Salary Projections Dip Amid Economic Woes

November 14, 2001(PLANSPONSOR.com) - The uncertain economic climate coupled with the War on Terrorism has prompted many companies to modify their 2002 salary increase projections ? trimming them by as much as 0.5%, and placing a greater reliance on variable pay options, a study by Hewitt Associates finds.

Reported by

Camilla Klein

After the September 11 attacks a survey of 660 respondents found that the projections have been revised, and now average:

for salaried exempt employees, 4%
for salaried nonexempt employees, 4%
for nonunion hourly workers, 3.9%, and
for executives 4.1%

Those numbers were down noticeably from Hewitt’s 25th annual “US Salary Increase Survey,” of 953 organization conducted prior to September 11, which found that average projected salary increases for 2002 were:

for salaried exempt employees, 4.5%
for salaried nonexempt employees, 4.4%,
for nonunion hourly workers, 4.3%, and
for executives, 4.6%

In comparison, actual 2001 increases were:

for salaried exempt employees, 4.6%
for salaried nonexempt employees, 4.4%
for nonunion hourly workers, 4.2%, and
for executives, 4.7%

Increasing Variables

The survey also found that the popularity of variable compensation plans is on the increase, despite the fact that 68% of the respondents don?t know if they directly improve business results. These plans involve performance-related awards that must be re-earned each year and does not permanently increase base salary.

Results show that:

a little over 80% of the sample has at least one type of variable pay plan in place,
compared to 78% last year, and
a little over half in 1991

Award Reward

According to Hewitt’s research, the most common types of variable pay plans include:

special recognition programs, which acknowledge achievements with small cash awards or gifts, cited by 55%,
business incentive programs, which reward employees for a combination of financial and operational measures for company, business unit, department, or individual performance ? implemented by 53%,
individual performance awards, which are rewards based on specific employee performance criteria, mentioned by 46%, and
stock ownership plans, which award stock to professionals who meet specific goals, cited by 41%