World At Work: Salary Budgets At 3.5% in 2003

This year’s decrease from 2002’s numbers is being attributed to an ongoing sluggish economy that continues to depress corporate salary budget increases in 2003. Further, looking toward 2004, the survey could only see a slight improvement to 3.7%, according to a news release.

To help alleviate the strain on already pressured salary budgets, survey respondents indicated that fewer employees would receive pay raises. Nationally, just fewer than 83% of employees are likely to receive a pay raise this year, as compared to 85% last year, and 94% who received an increase in 2001. Additionally, the survey indicates workers of all ranks may go two years between increases.

Overall, WorldatWork found salary structures increased an average 2.1%, yet more than a third of those polled reported no increase in their structure. While an increase, the movement is less than what was projected a year ago and continues the decline, setting a new low for the 30-year history of the study. However, projections for 2004 indicate the salary structures will climb an average of 2.3%.

Total compensation also is expanding outside of just salary with respondents reported an increase in the use of variable pay – cash bonuses and other incentives to reward performance – increasing to a record high of 75% in 2003. The amounts paid ranged from 5.7% of base pay for hourly workers, 11.7% for management and 29.8% for executives. Looking toward 2004, the outlook on incentive pay is similar.

Additionally, stock-based incentive programs continue to be popular with 70% of respondents reportedly using them. Not surprisingly, stock options were the most popular stock-based program by far, followed by restricted stock. Breaking it down:

• 84% of companies report using stock options as an incentive for executives
• 63% report using stock options as an incentive for managers
• 15% are utilizing stock options as incentives for hourly workers.

Bright Side

However, inflation is running almost a point less than salary increase budgets. The Conference Board, which earlier released similar salary budget projections (See Conference Board: Salary Budgets At 3.5% in 2003 ) is projecting a 2.6% rise in the Consumer Price Index for 2003 compared with a 3.5% average salary budget. The 2.7%-inflation increase projected for 2004 maintains this differential. These numbers are encouraging for employers that are trying to avoid a “double whammy” of declining salary increases and rising inflation.

Respondents to the survey are WorldatWork members who are employed in the compensation and benefits departments of more than 3,100 companies, representing a total of 15.8 million US employees.