Benefits July 27, 2006

Survey Finds Employers Focused on Rewarding High Performers

July 27, 2006 (PLANSPONSOR.com) - US employers responding to the 2006/2007 US Compensation Planning Survey from Mercer Consulting say they plan to grant average pay increases of 3.7% in 2006, slightly over the 3.6% they granted in 2005.
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According to a news release from Mercer, respondents also project pay increases in 2007 to remain constant at 3.7%. Employers will concentrate on rewarding high performers and those with skills in demand, the release said.

“Still reluctant to increase base salaries, companies are focusing on variable pay and allocating reward dollars to employees with skills in high demand and to high performers,” said Steven Gross, global leader of Mercer’s Broad-based Rewards consulting, in the release.

Companies surveyed said that the budgeted pay increases for high performers would typically be twice that of low performers (5% versus 2.5%) in major employee groups ranging from management to office/clerical/technician positions.

According to the survey, the most prevalent vehicles other than salary increases being used to reward employees with strong skill sets are spot cash awards, project milestone awards and signing bonuses. Gross said companies are beginning to segment their workforce to identify the most valuable contributors.

Information Technology employers make particular use of these incentives, with spot cash awards used by 85% of responding IT organizations, project milestone awards used by 77% and signing bonuses by 67%, the survey found. Spot cash awards are also popular among Accounting & Finance (78%), Human Resources (73%) and Sales & Marketing (69%) employers.

When asked about emerging reward practices, 28% of participating companies said they are considering formal career planning as a means to continually develop internal talent.

Other findings of the survey, according to the news release, include:

  • Some 85% of companies plan to offer short-term incentives to at least one employee group in 2006. Additionally, since 2003, 24% of companies indicated that the number of employees eligible for short-term incentives has increased.
  • When asked what compensation investments have been implemented or are being considered, 36% of respondents said they had increased pay differentiation based on performance, with an additional 9% considering doing so.
  • For the seventh year in a row, formal non-monetary recognition awards top the chart, with 71% of responding organizations offering them while another 6% are considering doing so.
  • The use of broad-based equity (such as stock options) continues to decline from its peak of 37% in 2002 to 19% in 2006, with only 2.1% of responding organizations considering implementing such rewards.

To purchase the full report of Mercer’s 2006/2007 US Compensation Planning Survey, visit www.imercer.com/cps or call 800 333 3070.

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