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2011 Compensation Budgets Stabilizing
U.S. employers hold the line on salary and variable pay increases

By Stephen Miller  12/16/2010
 

 

updated 12/21/2010

U.S. employers' compensation budgets are likely to remain intact for 2011, and few companies expect to have to take drastic actions such as pay freezes to reduce costs, a November 2010 survey from consultancy Aon Hewitt reveals.

Aon Hewitt’s survey of more than 500 employers found that:

  • Three-quarters of U.S. companies expect to reach or exceed business performance goals by year-end 2010, leading to the stabilization of pay and variable pay budgets in 2011. Most companies (56 percent) made no revisions to their original base salary increase budgets in the latter half of 2010.
  • In 2011, salary increases for salaried exempt workers are expected to be 2.8 percent. This is up from 2.4 percent in 2010 and significantly higher than the record-low pay raises workers saw in 2009 (1.8 percent).

“Prior to the recession, companies were optimistic about their compensation budgets but ultimately scaled back from their original projections in an effort to control costs,” explained Ken Abosch, marketing strategy and development leader in Aon Hewitt’s broad-based compensation consulting practice. “As business performance increases, organizations are more comfortable with stabilizing salary budgets. That said, we will not see base pay raises return to pre-recession levels, as these sub-3 percent increases represent the new ‘normal’ in base-pay spending.”

Variable Pay Holds Steady

In addition, spending on variable pay—performance-based awards that must be re-earned each year—is holding steady. Updated findings show that 2011 spending on variable pay as a percentage of payroll will be 11.6 percent for salaried exempt workers, down slightly from original projections of 11.8 percent.

“We’ll continue to see employers move toward compensation models that reward employees for strong business and individual performance,” said Abosch. “Despite economic instability, employers spent more on variable pay in the past three years than they ever have before. Workers should be encouraged that there are still compensation dollars out there, but they will be expected to show strong results to earn them.”

In addition, Aon Hewitt’s survey shows that none of the respondents planned to cut pay in 2011, and just 11 percent planned to freeze salaries for salaried exempt and nonexempt workers in 2011, which is similar to 2010, when 12 percent of organizations froze salaries. 

Changes in 2011 Salary Increase and Variable Pay Projections

 

Original* 2011 salary increase projections

Updated 2011 salary increase projections

Original* 2011 variable pay projections

Updated 2011 variable pay projections

Salaried exempt

2.9%

2.8%

11.8%

11.6%

Executives

2.9%

2.7%

N/A

N/A

Salaried nonexempt

2.9%

2.8%

6.1%

5.4%

Nonunion hourly

2.8%

2.7%

5.1%

5.7%

Union

2.8%

2.7%

4.4%

4.2%

* "Original" data is from Aon Hewitt’s salary increase survey conducted in August 2010. "Updated" data is from the November 2010 survey.

Source: Aon Hewitt.

 

Another View

Separately, Sibson Consulting reports that U.S. salary increase budgets in 2010 rose between 2 percent to 2.2 percent, which was well below historical levels. For 2011, the upward trend is expected to continue, with budgets rising another half a percentage point, to between 2.5 percent and 2.7 percent. These gradual moves reflect the fact that "while uncertainty still exists in economic forecasts, the economy has stabilized to the extent that HR and finance leaders feel comfortable enough to plan increases in the growth rate of fixed payroll costs," according to Sibson's analysis.

Average Increases in Salary Budgets for all U.S. Industries, by Broad Job Classification

 

2010 Actual

2011 Projected

Executive

2.2%

2.7%

Exempt

2.1%

2.5%

Nonexempt

2.0%

2.5%

Source: Sibson Consulting.

 

In addition, Sibson found that U.S. salary-range increases were expected to rise in 2011 slightly more than half a percentage point, to approximately 2 percent.

Average Salary-Range Adjustments for All U.S. Industries, by Broad Job Classification

 

2010 Actual

2011 Projected

Executive

1.2%

2.1%

Exempt

1.5%

2.1%

Nonexempt

1.4%

2.0%

Source: Sibson Consulting.

 

Stephen Miller is an online editor/manager for SHRM.

Related Article—External:

Compensation Planning 2011: Moderation Continues, Sibson Consulting, December 2010

Related Articles—SHRM:

No Spike in Hiring, but Payrolls Seem More Stable, SHRM Online Staffing Management Discipline, December 2010

Salary Structures: Creating Competitive and Equitable Pay Levels, SHRM Online Compensation Discipline, November 2010 

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