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Hewitt Survey Shows Employer Spending On 2010 Salary Increases And Variable Pay Awards Lower Than Originally Anticipated (Graphic: Hewitt Associates)

While the economy is showing signs of improvement, U.S. employers remain concerned about the stability of the economy. This uncertainty is evident in the amount of money they are allocating toward pay raises and performance awards this year, according to a new survey by Hewitt Associates, a global human resources consulting and outsourcing company. Hewitt’s survey shows that companies are spending less on pay raises and variable pay awards in 2010 than they originally anticipated. But they are more optimistic about the future, with most expecting to bump up salary increases and variable pay awards in 2011.

Hewitt’s survey of more than 1,450 large companies shows that base salary increases for salaried exempt workers were 2.4 percent in 2010. These numbers are down from what employers originally projected in August 2009 (2.7 percent), but still higher than the record-low pay raises workers saw in 2009 (1.8 percent).

Salary increases are expected to bounce back slightly in 2011. For salaried exempt workers, salaried nonexempt workers and executives, Hewitt’s survey shows base pay increases of 2.9 percent. Nonunion hourly and union employees can anticipate salary increases of 2.8 percent.

“Going into 2010, employers were optimistic that they would be able to allocate more money towards compensation, but the lagging economy and lower-than-expected company performance forced many employers to revise their spending,” said Ken Abosch, leader of Hewitt’s North American Broad-Based Compensation Consulting practice. “We predict a similar situation in 2011. Right now, employers believe they'll be able to raise salaries next year, but if the economy remains unstable, they'll be forced to readjust base pay increases to offset other spending or revenue shortfalls."

Historical U.S. Salary Increases

    2007     2008     2009     2010     2011
Executives 4.0% 3.9% 1.4% 2.4% 2.9%
Salaried exempt 3.7% 3.7% 1.8% 2.4% 2.9%
Salaried nonexempt 3.6% 3.7% 1.9% 2.4% 2.9%
Nonunion hourly 3.6% 3.6% 2.0% 2.4% 2.8%
Union 3.3% 3.4% 3.4% 2.5% 2.8%

While 2010 salary increases are lower than expected, the news isn’t all bad. The number of companies freezing salaries this year was down significantly, and this trend is expected to continue into 2011. In 2010, 21 percent of organizations froze salaries, compared to nearly half (48 percent) in 2009. Just 10 percent of employers anticipate salary freezes in 2011.

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