STAMFORD, Conn.--(BUSINESS WIRE)--Salaries will be on the rise in 2010 at many companies across the U.S., according to recent research from Towers Perrin. This is a significant shift from the lockdown many organizations placed on compensation budgets during 2009. In fact, 65% of companies that froze salary budgets in 2009 will unfreeze them in 2010. Yet most companies report continued uncertainty and lack of confidence in the near term, and are therefore limiting annual merit increases accordingly.
“Companies are making an effort to gradually return some sense of normalcy to compensation budgets in the coming year”
Just one-third of those surveyed anticipate significant improvement in business conditions for their industry or organization by the close of next year’s second quarter. As a result, the median salary increase for employees, excluding those who received no increase at all, will be only about 3% in 2010 -- an increase relative to 2009 at many companies, but down from the nearly 4% median increase seen in the pre-recession days of 2007. Simultaneously, in 2010, companies plan to put more emphasis on differentiating the pay increases they do grant as part of their strategy to retain key talent.
“Companies are making an effort to gradually return some sense of normalcy to compensation budgets in the coming year,” said Ravin Jesuthasan, Towers Perrin Managing Principal. “But in the current environment, ‘normal’ is a relative concept. Employees coming off a year with no salary increases or bonuses will likely appreciate a small bump in compensation, even if it is noticeably off from pre-recession norms.”
In 2009, companies made a number of cuts to employee compensation programs in an effort to reduce expenses and perhaps avoid layoffs. In total, 43% of companies polled froze salary budgets for 2009; 25% cut back on employer 401(k) contributions, and 17% reduced hours worked for some or all employees. For 2010, the plan is to slowly reverse these strategic cuts as businesses take thoughtful actions to balance the competing needs of cost reduction and talent management. In the coming year, just 17% of companies polled plan to have a salary freeze in place and, 7% will reinstate salaries across the board.
Employee 401(k) plans should also see modest improvements in 2010. Of all companies polled, 10% plan to increase employer 401(k) contributions in 2010. Among those companies that cut back on the 401(k) match in 2009, the change is more dramatic; in this group, a full 35% are planning to increase their 401(k) contributions next year.
Companies in many countries around the globe share the U.S. group’s conservative outlook on 2010, with projected median salary increases around 3.0% or less. On the opposite end of the spectrum, employers in the BRIC countries (Brazil, Russia, India and China) and certain high- inflation economies are projecting faster salary growth, with expected 2010 salary increases of 7.0% or higher, according to Towers Perrin’s 2009-2010 Global Compensation Planning Survey conducted in summer 2009.
Retention in the Recovery
Despite the projected compensation increases, companies appear to be growing concerned about retaining their high-performing top employees and those in pivotal roles once hiring picks up. According to the Towers Perrin research, 70% of companies are very or somewhat concerned about losing key talent as a result of the cutbacks made during the recession.
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One place for all compensation related information. We will visit the top 10 Compensation blogs daily and update the entries from those blogs here so that you can view it all in one place. We will look for other trends and useful info on compensation and HR and post it here. You can also share your expertise and get published here.
12/29/2009
Compensation Trends Improving, but Employees Won’t Make up Lost Ground from 2009 Just Yet, Says Towers Perrin Study | Business Wire
Compensation Cafe: Executive Compensation: The Real RIsk
Although the correlation between executive pay and risk hasn’t been proven, there seems to be general agreement that a well-designed executive compensation package should allow for some risk while discouraging excessive risk-taking with an appropriate mix of long-term incentives and focus on performance based pay.
However, there are a few problems with this:
•Focus on the Wrong Kind of Risk: When business analysts argue that executive compensation should encourage an appropriate level of risk-taking, they seem to be talking about bold acquisitions or moving into a new area of business to support long-term growth. But there are other kinds of risk, for example, the risk to long-term company viability created by dramatic layoffs and other draconian cost cutting measures. Executive compensation packages don’t typically guard against this kind of risk.
•Flawed Definition of Pay for Performance: It seems reasonable to assert that executive pay should be based on performance, although my last post about tying rewards to creative endeavors discusses why this might not be such a great idea. The problem is that when we talk about performance with respect to executives, for the most part we’re talking about share price. Unfortunately, although share price is supposed to take long-term risks into account based on the efficient market hypothesis, we have seen how easy it is to inflate the perceived value of financial assets, at least for a while.
•Short-Term Incentives Disguised as Long-Term Incentives: According to the recent Workspan article ‘How Well Do You Understand the Relationship Between Pay and Risk?’, stock is generally the favored long-term incentive. The problem is that if you have a LOT of shares a .01 cent increase starts to look like real money in the short-term. So, you can hold out for the long-term pay off, which will require luck, skill, and investment, or you can lay off a third of your key personnel and cancel the Christmas party and cash in now. It takes a special sort of leader to take the high road when everyone else is cuttings costs and the rewards are far from assured.
•Executive Compensation is Set by Other Executives: There has been recent outcry that the government doesn’t have the expertise to control executive compensation, but do executives? In his recent post ‘Why You Want Rich People to Set Your Pay,’ Bob Sutton noted that the higher the Board of Directors is compensated, the higher they will compensate the CEO on their watch. This is possibly why we see so many outrageous examples of golden parachute agreements that provide former executives and their wives with lifetime tanning and poodle walking services. (I made that up but it probably exists - see New Yorker article ‘The Pay Problem: What’s to be Done About CEO Compensation’ by David Owen for more sobering examples of golden parachute agreements.)
•No One is Watching the Watchers: Most company shareholders own a small number of shares, likely as part of a diversified portfolio managed by a fund manager and hidden in some sort of investment fund. Although they may vote on Board elections, they have little actual power over the Board. Theoretically, large fund managers can influence Board members but in practice they probably sell other lucrative fund management services such as 401K administration to the same company. And although long-term company health is definitely a bonus, large investors make plenty of change on short-term wi
Pay For Performance, Really? - From Compensation Cafe
Why does pay for performance matter? I used to work in a unionized public sector environment where pay was determined solely by job level and years of experience. I was giving a review to a solid performer one time who actually said to me, “I don’t have any reason to work any harder, that guy who’s worked here longer than I have makes more money than I do even though he doesn’t do as good a job.” Now, I would never recommend saying that to one’s supervisor as it certainly colored my opinion of her; but I did have to acknowledge (internally) that she wasn’t totally off base. The pay system that we were bound by didn’t reward performance at all and I couldn’t give anything other than the prescribed increase. This was a fairly young girl who made this comment, but I’d bet that employees probably share these feelings to some degree in any environment where performance doesn’t have a direct tie to pay. Not good if you need your employee’s full efforts to succeed.
There is another business reason to pay for performance that may just get your CFO on board. According to Hay Group surveys of “most admired” companies, more than half of those identified companies provide pay increases to their top performers that are over two times larger than those provided to their average performers. They truly differentiate the rewards given and really pay for performance. Since companies that receive the most admired rating consistently outperform their competitors financially, emulating their best pay principles is probably not a bad idea.
It’s easy to test and see if you really do pay for performance by comparing the total remuneration package of your top performers to that of your average performers. If an appreciable difference doesn’t exist, you might want to reconsider how you give your rewards out. You may even be able to reallocate funds from lower performers to fund the rewards for your top performers. If you do differentiate pay for top performers then you should communicate that to all of your employees to encourage more effort and better results from all employees who will believe they’ll be rewarded for those efforts.
Darcy Dees, CCP works as the Compensation Manager for Rock
Bottom Restaurants, Inc., headquartered in Louisville, CO. She has
worked with RBR for nearly 10 years helping to develop many of the
compensation and performance management programs the company uses
today. She spends what little free time she has hiking and reading.
The
opinions expressed here are the personal opinions of Darcy Dees.
Content published here is not monitored or approved by Rock Bottom
Restaurants, Inc. before it is posted and does not necessarily
represent the views and opinions of Rock Bottom Restaurants, Inc.
Pay For Performance, Really?
12/28/2009
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