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August 17, 2009

Raises, Bonuses on Opposite Trajectories

Filed under: General HR Buzz11:27 am

A survey of more than 1,000 large companies says raises are at a new low, but bonuses are at a new high. Some see it as a way to save jobs.

U.S. companies in 2009 doled out the lowest salary raises in the 33 years since consulting firm Hewitt Associates first started surveying companies on their pay practices. At the same time, companies devoted the largest portion yet of their payrolls to employee bonuses.

Average salary increases this year dropped well below 3% for the first time since Hewitt started tracking the data in 1976.

Meanwhile, the portion of companies’ compensation budgets devoted to performance-based bonuses rose to about 12% of payroll on average for some salaried workers, up from about 6% a decade ago. (This survey counts executive bonuses only to the extent executives are eligible for all-employee bonuses; most executive bonuses are not counted here.)

But while so-called performance pay is up, the traditional salary raise has never been lower in this survey. Looked at by worker category, pay increases for salaried exempt workers averaged just 1.8% in 2009, while salaried nonexempt workers received average raises of 1.9%, according to Hewitt’s survey in July of 1,156 large companies. Exempt workers generally don’t receive overtime pay.

 

A pretty awful picture

Executive raises averaged 1.4%, while nonunion hourly workers saw an average 2% raise, and union workers received a 2.2% average increase, according to the survey. “It’s a pretty awful picture,” said Ken Abosch, compensation practice leader with Hewitt, based in Lincolnshire, Ill.

Companies’ large-scale compensation cuts stood out starkly in 2009, he said. “In a normal year, if a company freezes their budget, they would give us a zero,” he said. “This year we got responses from companies with negative-5%, negative-10%, which was just unprecedented.

“For some companies, it was a way to save jobs. Rather than terminating people, they decided to try to reduce costs by trimming salaries for everybody.”  Forty-eight percent of companies froze salaries in 2009, up from 2% in 2008. In 2010, 13% of companies plan salary freezes, according to the survey. “If there’s any good news,” Abosch said, “few companies are planning to do any further salary, cuts and, while there still are a larger number than we typically see doing salary freezes, that number has dropped considerably over what we saw this year.”

 

Companies embrace bonus pay

Meanwhile, some employees are enjoying bonus payments. “Even in the toughest economies, companies are willing to reserve money for top-performing employees,” Abosch said.

Looked at by type of worker:

  • Companies spent an average of 12% of payroll on performance pay for salaried exempt workers in 2009, up from 10.8% in 2008. They expect to pay 11.8% for those workers in 2010.
  • For salaried nonexempt workers, companies paid an average of 6.5% of payroll in bonus pay, up from 5.7% in 2008. The outlook for 2010 for those workers is 6.1%.
  • For nonunion hourly workers, companies paid an average of 5.8% in bonuses, up from 5% in 2008. The outlook for 2010 is 5.5%.
  • For union workers, companies paid an average of 6.6% in bonuses, up from 5.9% in 2008. The outlook for 2010 is 6.4%.

 Why doesn’t this survey track executive bonuses?

“This study doesn’t get into all the complexities of deferred-cash arrangements and stock plans for executives,” Abosch said. ”

 Outlook for 2010 brighter, but not much

Companies expect to increase their compensation budgets more next year, with raises expected to average about 2.7%.

Still, Abosch said, that’s not much improvement.

“Historically, we’ve never crossed (below) the 3% threshold until this year, and so the fact that we don’t see a recovery above 3% is a pretty bleak outlook,” he said.

Here’s the 2010 salary-increase outlook, according to the survey:

  • Salaried exempt workers, 2.7%.
  • Executives, 2.6%.
  • Salaried nonexempt, 2.6%.
  • Nonunion hourly, 2.7%.
  • Union, 2.7%.

Andrea Coombes for MarketWatch.

Published Aug. 17, 2009

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