WorldatWork Survey, January Update: Pay Cuts Not as Prevalent as Pay Freezes in 2009
 
January 19, 2010 – Washington, D.C. – In response to the sluggish economy, many corporations either froze or cut pay in 2009. Even as the economy starts showing signs of life, a majority plan to remain conservative when it comes to pay practices in 2010. The WorldatWork 2009-10 Salary Budget Survey, January 2010 Update (fielded in October 2009), found that 52% of U.S. employers froze pay for some or all employees in the 2009 recession, while 13% cut pay.
 
Will employees see their pay restored in 2010? At least 22% of organizations that froze pay in 2009 are planning to prolong the freeze into 2010, while 54% plan to resume normal pay activities this year. More than a third said they were in a recession (in October) and were not in a position to unfreeze pay.

 Of those organizations that cut pay, 37% said they remained in a recession and were not yet considering recovery actions; 29% planned to restore pay in full, while 15% said the pay cuts were permanent.
 
"Employers are taking a 'wait and see' stance when it comes to returning to normal pay practice," said Jim Stoeckmann, CCP, compensation practice leader at WorldatWork. "There are risks both ways. Moving too fast in restoring salaries and merit budgets leaves employers vulnerable if the recovery fails to materialize. Moving too slowly creates the risk of turnover as employees look for a better opportunity with another company. Even with jobs scarce, there are always opportunities for employees with the right skill set."
 
As salary budgets remain tight and employee satisfaction low, organizations are turning to other ways to motivate and reward employees. Employers are focused on providing or enhancing career development opportunities (33%), non-cash rewards and recognition (28%), leadership training on employee motivation (21%), flexibility options (20%), monetary rewards for high performers (19%), and monetary rewards for mission-critical talent (15%).
 
"With lower than normal employee satisfaction levels, it is crucial for employers to center the employee value proposition on the entire total rewards package," said Alison Avalos, research manager for WorldatWork. "Employers can cultivate employee loyalty by highlighting non-cash rewards, particularly for key employees. These programs validate the employee's time, effort and talent, even in the absence of salary increases."
 
About the Survey:
The WorldatWork 2009-10 Salary Budget Survey, January 2010 Update was fielded in October 2009. Survey respondents are WorldatWork members employed in the HR, compensation and benefits departments of mostly large U.S. companies. N = 875.

Another major salary budget survey (this one from Hewitt Associates)  is out and it shows that merit and variable pay budgets have largely stabilized for 2010. With the economy (but not the labor market yet) on the mend, it's likely that these numbers will approximate what we will actually see in 2010.

Projections made in 2007 for 2008, and again in 2008 for 2009, turned out to be completely off the mark, mostly because few saw the recession (or or its strength) coming. But barring another swoon, merit projections have largely stabilized and are now looking like they will hold in 2010, for the most part.  Thanks to our friend Ann Bares at the Compensation Force blog for lending us her graphic.

As you can see, compared to projections made months earlier, it looks like most employer budgets are headed for the 2.5% range +/- based on this sample of over 500 companies, mostly larger employers.

Variable pay budgets have held up fairly well too, with companies budgeting 11.2% of payroll for variable compensation for salaried exempt workers, down somewhat from 11.7% in the earlier study done by Hewitt. Other employment groups were virtually unchanged from the previous survey.

Despite the slight drop in variable pay budgets, the longer-term trend for variable pay has been steadily up, increasing from 6.4% in 1994 to 11.2% in 2010 for exempt workers.

Another encouraging trend is that far fewer employers are planning to freeze salaries in 2010, 17%, down from nearly half (48%) in 2009.  Our guess is that if the economy continues to stabilize and slowly improve, the prevalence of salary freezes will drop even further.   In addition 0% of companies in the study were planning salary reductions for 2010, vs. 10% in previous earlier survey earlier this year.

Hewitt predicts, and we agree, that merit budgets will remain constrained for some time, as employers put more emphasis on variable/incentive pay, and as employers continue to struggle with rapidly rising employee benefits costs, primarily in health care.

2010 Salary Planning Roundup

Many thanks to my blogging partner at the Compensation Cafe, Ann Barnes, who also has her own blog called Compensation Force, for letting me post her excellent summary of the most recent salary planning data for 2010. 

From Compensation Force:

As has become a tradition of sorts here, I have compiled the high level 2010 salary planning data from a number of the most well-known sources and am presenting it here ... for your reading pleasure.

The table below features research on average salary increases (both actual 2009 and projected 2010) from the salary planning surveys published by Watson Wyatt, WorldatWork and Hewitt, organized by employee group.

More information to follow, as more data comes in. Happy Planning!

Preliminary results from Culpepper's annual survey of salary budgets reveal that global base salary increase budgets have risen by an average of 51 percent from 1.89% in 2009 to 2.85% in 2010 (see below for U.S. data). The survey was conducted from late June through mid August, 2009.

Key Findings from the study:

• The number of companies freezing salaries is projected to decline from 37 percent in 2009 to 13 percent in 2010.
• Excluding salary freezes (companies projecting a 0% increase), global base salary increase budgets are projected to increase slightly from 3.18% in 2009 to 3.27% in 2010.
• Base salary increases in the U.S. are projected to increase from 1.63% in 2009 to 2.65% in 2010. Excluding organizations projecting a 0% increase budget, salary increases in the U.S. are projected to hold relatively steady from 3.08% in 2009 to 3.07% in 2010.
• Base salary increases in Canada are projected to increase from 1.13% in 2009 to 2.38% in 2010. Excluding freezes, salary increases in Canada are projected to increase slightly from 2.95% in 2009 to 3.02% in 2010.
• Base salary range structure increases are projected to increase from 1.18% in 2009 to 1.61% in 2010. Excluding freezes, salary range structure increases are projected to decline slightly from 2.84% in 2009 to 2.70% in 2010.
• Additional breakouts and data for over 80 additional countries will be published in the final report, available September 2, 2009.

Salary increase budgets have changed dramatically over the past year. In August 2008, before the global economic crisis unfolded, average base salary increases exceeded four percent (Figure 1) and only two percent of companies were freezing salaries (Figure 2). From late 2008 through mid-2009, the number of companies freezing salaries increased to 37 percent, which drove average base salary increases below two percent.

Overall, projections for 2010 have improved significantly compared to 2009. However, a relatively high number of companies plan to freeze salaries in 2010, and average projected base salary increases are still much lower than recent years.

Data Source: Culpepper Trends Survey of 714 participating organizations reporting salary increase data.

Availability of Final Results:
A comprehensive report with final results and analysis from our recent survey, 2009-2010 Salary Budget & Planning Survey, will be available by September 2, 2009. The final comprehensive report will include data breakouts for the U.S. and Canada by job function/level, number of employees, and industry sector. Additional breakouts will be available for 90 countries and 16 international geographic regions.

Source: Culpepper Trends Surveys, August 2009, www.culpepper.com.

Full disclosure: Culpepper is a strategic partner of the StrategicPay Series.

Watson Wyatt just released its salary budget survey summary for 2009 - 2010.  Not surprisingly, the data is low compared to recent years, but not as low as had been projected earlier this year, when we weren't sure if the world was going to implode under the weight of the financial crisis.

Here's a quick summary of the key data:

The entire summary report can be found here.

One good piece of news is that employers seem confident enough that the vast majority say they they will be offering salary increases next year. Only about 10% of participants say they will not be granting increases next year, versus roughly a quarter that didn't grant any increases in 2009.

Projected salary structure increases for 2010 are in the ranges of 2.0% to 2.8% (depending on whether or not you count companies planning no increases), vs. approximately 1.8% to  2.8% in 2009 (same). Both year's adjustments are quite low by historical standards, but to be expected, considering the economy and the battered labor markets.  Only about 2/3rds of employers plan to adjust structures in 2010, vs. slightly over one-half in 2009.

Salary budget increases are at there lowest in 36 Years, according to preliminary results released today by WorldatWork.

In addition, according to the press release, at least 40 percent of salary budgets are frozen for officers and executives, says the WorldatWork survey of U.S. organizations.

Below is the press release from WorldatWork that was published earlier today:

Washington, D.C. – July 8, 2009 – Corporate salary budget increases have dropped to historic lows, according to the WorldatWork 36th Annual Salary Budget Survey. At 2.2 percent, the 2009 increase is the smallest in the survey's history and 1.7 percentage points below the 3.9 percent that had been projected in the previous year's report. The WorldatWork survey, the largest of its kind, clearly shows that the economic crisis continues to put pressure on employee salaries, though projections for 2010 suggest improvement.

The 2,600 respondents to the survey are WorldatWork members who are employed in the compensation and benefits departments of various employers, representing a total of 16 million U.S. employees.

"A projected salary budget increase of 2.8 percent for 2010 indicates we may have touched the bottom this year and a turnaround may be on the horizon," said Anne C. Ruddy, CCP, president of WorldatWork. "While it's heartening to think the worst may be behind us, compensation plans will likely be in flux for at least the next 12 months. We plan to re-survey our members this summer to monitor thawing of any kind."

"This recession is having a greater impact on compensation than the previous recession brought on by 9/11, when employers still managed to increase salary budgets by 3.6 percent," observed Alison Avalos, research manager for WorldatWork. In spite of the falling budgets, the survey shows employers are committed to awarding raises to about eight in every 10 of those employed. "This may come as a surprise to many given that one in three survey respondents indicated they are planning zero-percent salary budget increases this year," added Avalos. "Layoffs, hiring freezes, shifting pay increase dollars from executives to staff, and other cost-saving actions may be allowing employers to continue planning for at least some pay increases for remaining employees, especially top performers," Avalos explained.

Human resource practitioners continue to use variable pay, which consists of cash bonuses and other incentives, to reward results. For 2009, employers are budgeting an average of 5 to 11.5 percent for variable pay, depending on employee category.

About the Survey:
WorldatWork collected survey data in April 2009. The full survey report includes results for North American regions, all 50 states, major U.S. metropolitan areas, major industries as well as data by organization size, performance category and employee category.

Additional data cuts are now possible via SBS Online, which gives subscribers the ability to customize data cuts. A free Webinar will be held on August 25 for members and non-members.

In an independent survey by IOMA (April 2009), the WorldatWork Salary Budget Survey was rated the most popular source by 74 percent of large companies surveyed.

About WorldatWork® - The Total Rewards Association
WorldatWork is a global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of more than 30,000 members and professionals in 75 countries with training, certification, research, conferences and community. It has offices in Washington, D.C. and Scottsdale, Arizona.