Variable Pay Rewards Reach All Time High in 2009

August 11, 2009 ( - While the economic downturn prompted U.S. companies in 2009 to grant employees the lowest base salary increases in 33 years, funding for variable pay was at an all time high, according to a recent survey by Hewitt Associates.

Hewitt data shows that spending on variable pay as a percentage of payroll for salaried exempt workers was 12% in 2009, up from 10.8% in 2008. According to a press release, in 2010, companies are budgeting variable pay bonuses at 11.8%.

“Even in the toughest economies, companies are willing to reserve money for top-performing employees as a way to reward their performance and ensure they retain these employees after the job market rebounds,” said Ken Abosch, leader of Hewitt’s North American Broad-Based Compensation Consulting business, in the press release.

Hewitt’s survey of 1,156 large organizations reveals that base salary increases dropped below 3% for the first time since Hewitt started tracking the data in 1976. Base salary increases for salaried exempt employees in 2009 were just 1.8% and are expected to inch up to 2.7% in 2010.Executive employees are projected to receive increases of 2.6% in 2010 compared to 1.4% in 2009.

Salaried non-exempt employees can also expect an increase of 2.6% in 2010, up from 1.9% in 2009. Salary increases for nonunion hourly and union workers are projected to be 2.7% in 2010, compared to 2% and 2.2%, respectively, in 2009.

Hewitt also found that nearly half (48%) of companies froze salaries in 2009, up considerably from 2% in 2008. In 2010, 13% of companies anticipate salary freezes – more than two-thirds of which had a freeze in place in 2009.