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Companies Worldwide Rewarding Performance with Variable Pay
 

By Stephen Miller  3/1/2010
 

Although pay raises were at an all-time low in 2009, most employees around the world can expect to see a slight rebound in salary increases in 2010, according to a survey by consultancy Hewitt Associates. To see a significant increase in compensation, workers will need to focus on meeting their performance goals as companies continue to shift a greater portion of their compensation budgets toward variable pay programs that reward and retain high-performing workers.

Hewitt’s global compensation survey of more than 6,000 large companies in 46 countries reveals that projected average pay raises worldwide will increase or stabilize in 2010 compared to 2009 numbers. However, these amounts are still considerably lower than pre-recession salary increases. While base salary increases continue to lag, more than 80 percent of companies globally are offering variable pay programs—or performance-based awards that must be earned each year. Companies that offer variable pay expect to maintain or increase marginally the percentage of payroll they spend on bonuses in 2010.

“While employees around the world will see a slight increase in salary adjustments for 2010, they shouldn’t expect these increases to return to prior levels anytime soon,” says Shekhar Purohit, Hewitt’s global compensation consulting leader. “Over the past decade, and increasingly in the past year, variable pay has become the standard as companies reward strong performance and lower overhead costs. We expect this trend to continue in the coming years.”

Salary and Variable Pay Trends by Region

Factors such as inflation, unemployment rates and available talent have an impact on a country or region’s average salary and variable pay levels. For example, countries such as Argentina, the United Arab Emirates and Turkey are likely to see higher-than-average salary increases in 2010 to offset higher inflation rates. In emerging markets such as India and China, however, salary increases are expected to be significantly higher than predicted inflation rates. This indicates that there are other factors, such as the demand for talent, that are strongly influencing proposed salary increases.

North America

Salary increase budgets in North America are expected to bounce back slightly in 2010 but are still projected to be much lower than the increases given before the recession.

Base pay increases for U.S. workers are projected to move up to 2.7 percent in 2010, from 1.8 percent in 2009—the lowest percentage on record since Hewitt began tracking this data in 1976. But variable pay as a percentage of payroll for salaried exempt employees in the U.S. was 12 percent in 2009, an all-time percentage high. Hewitt projects 2010 budgets to be in line with that at 11.8 percent.

Canada is also expected to see modest improvement in base pay increases for 2010. Salary increases are expected to be 2.8 percent, up from 2.2 percent in 2009. Spending on variable pay as a percentage of payroll is expected to drop slightly in 2010 to 9.6 percent, from 10.1 percent in 2010. 

Variable Pay (Bonuses) as a Percentage of Payroll in 2010*

United States

11.8%

Canada

9.6%

Asia Pacific

13.0%

Europe

12.5%

Latin America

17.5%

*Among companies that offer variable pay.
Source: Hewitt Associates

Asia Pacific

Most companies in the Asia Pacific region are taking a conservative approach to salary increases in 2010, driven primarily by high inflation rates and tough economic times. Overall, 2010 salary increases in the region vary greatly by country.

Some countries in Asia will see stronger rebounds, motivated in large part by the war for top talent. For example, salary increases in China are projected to jump to 6.8 percent in 2010 from 4.7 percent in 2009. On the other hand, Japan is expected to see marginal increases of 2.1 percent in 2010, while Indonesia and India are expected to have the highest increases of 8.8 and 9.7 percent, respectively.

Similar to those in other regions, employers in Asia increasingly are using variable pay as a means for attracting and retaining talent and rewarding high-performing workers. Hewitt’s survey estimates that more than 87 percent of companies are offering variable pay programs in 2010. Of those, employers are budgeting 13 percent of payroll for variable pay, similar to the percentage in 2009.

Europe

For most Western European countries, average salary increase budgets for 2010 are projected to be in line with 2009 growth estimates. The predicted salary increases in Western Europe are expected to vary, with the lowest 2010 increases predicted for Switzerland at 1.9 percent and the highest for Italy at 3.3 percent.

In Eastern Europe, the picture is more varied. For example, the Czech Republic can expect salary increases to be 3 percent in 2010, while Turkey will see salary increases rise to 6.8 percent, driven largely by high inflation.

Most organizations in Europe (91 percent) offer variable pay plans, and variable pay budgets as a percentage of payroll in Europe are expected to increase significantly to 12.5 percent, compared with 10.5 percent in 2009.

Latin America

Varying economic and political conditions across Latin America make it difficult to generalize salary increase trends across the region. For example, significant inflation and mandatory salary increases driven by government and/or unions are contributing to jumps in salary increases in Argentina and Brazil. According to Hewitt’s survey, 2010 salary increases in Brazil are expected to be 5.7 percent, down just slightly from 2009 (5.9 percent). Salary increases in Argentina are expected to rise from 13.6 percent in 2009 to 15.2 percent in 2010.

Organizations in Latin America place a high value on variable pay programs. Ninety-one percent of companies in the region offer variable pay plans, with spending expected to be 17.5 percent of payroll in 2010.

Hewitt’s survey revealed that some countries in Latin America are ahead of the game when it comes to compensation practices. Companies in Mexico, for example, have stabilized salary increases and are now focused on differentiating high-performing and high-potential employees and rewarding them accordingly.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Beyond MSAs: Determining How U.S. Pay Varies by Geographic Location, SHRM Online Compensation Discipline, March 2010

U.S. Salary Increase Budgets Are Barely Exceeding Inflation, SHRM Online Compensation Discipline, February 2010

Financial Firms Jettison Short-Term Incentives, Adopt Performance 'Scorecards', SHRM Online Compensation Discipline, January 2010

Geographic Pay Differential Practices, SHRM Online Compensation Discipline, December 2009

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