Compensation budgets are likely to remain intact for 2011, with variable pay continuing to play an increasingly important role in the compensation package.
Aon Hewitt’s survey of more than 500 employers found that three-quarters of companies expect to reach or exceed business performance goals this year, leading to the stabilization of pay and variable pay budgets in 2011.
Fifty-six percent of participating organizations made no revisions to their original base salary increase budgets, which are anticipated to be at their highest levels in two years.
In 2011, salary increases for workers for whom overtime rules do not apply are expected to be 2.8%. This is up from 2.4% 2010 and significantly higher than the record-low 1.8% pay raises workers saw in 2009.
The survey also found that none of the organizations anticipated cutting pay in 2011 for this group of workers, and only 11% plan to freeze salaries. In 2010, 12% of employers froze salaries for this group.
Performance-based awards that must be re-earned each year (variable pay), made up 11.6% of payroll for 2011, down slightly from original projections of 11.8%.
“This survey data is from U.S.-based organizations, but we’ve been receiving a number of inquiries from Canadian organizations as well,” said Prashant Chadha, a compensation consultant in Aon Hewitt’s talent, rewards and communication practice in Toronto. “They want to stay on track with their projections and ensure that the salaries they pay remain competitive. Very few have mentioned decreasing the size of projected salary increases. In addition, from client conversations, we understand that bonuses are being paid.”
“Despite economic instability, employers spent more on variable pay in the past three years than they ever have before,” said Ken Abosch, marketing strategy and development leader in Aon Hewitt’s broad-based compensation consulting practice. “Workers should be encouraged that there are still compensation dollars out there, but they will be expected to show strong results to earn them.”
Chadha has noticed the same trend here in Canada.
“We have noticed an increased interest in the review and design of pay programs, especially those related to variable pay,” said Chadha. “Strong variable pay programs are increasingly becoming a focus of organizations that are moving towards or strengthening their pay-for-performance model, thereby ensuring they not only incent and reward eligible employees for attaining goals that are aligned with business objectives, but they have an advantage in the war to attract and retain key talent.”