How can you make smart decisions on pay budgets, merit budgets, and overall compensation given the economic turmoil of the last few years? Consultant David Wudyka tells us what’s going on and what we can do about it.
Wudyka is founder and managing principal of Westminster Associates, a Wrentham, MA based, full-service HR and compensation consultancy. His remarks came at a recent webinar sponsored by BLR.
As evidence of the widespread concern about what’s happening in compensation, Wudyka says that right now his firm is working on as many pay surveys as they ever have.
Last Year: A Strange Year!
The great recession has resulted in some panicky times in compensation, Wudyka says. We’re all trying to figure out how to manage comp with some of the lowest salary years on record.
Though more employers tried techniques such as variable pay plans in 2010, the ongoing weakness in the economy made it tough to follow through. Gainsharing for example, is unsuccessful when it’s designed around a variable such as revenue, and then your sector does not do well.
2011 Salary Increases
Planned salary increases are very consistent, Wudyka says, referring to the accompanying chart. These figures offer our first indication of a trend upward, Wudyka notes.
| EmployeeCategory | 2010 Actual (Mean) | 2010Actual(Median) | 2011Predicted(Mean) | 2011Predicted(Median) |
| Nonexempt hourly nonunion | 2.4 | 2.7 | 2.9 | 3.0 |
| Nonexempt salaried | 2.4 | 2.7 | 2.9 | 3.0 |
| Exempt salaried | 2.5 | 2.7 | 2.9 | 3.0 |
| Officers and executives | 2.5 | 2.7 | 3.0 | 3.0 |
Source: WorldatWork
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2011 Predicted Salary Increases: Another Perspective
Here’s another survey, Wudyka says, that shows the consistency of 2011 plans.
| Nonexempt | 2.8 |
| Exempt | 2.9 |
| Executives | 2.9 |
| All Groups | 2 |
Source: RSM McGladrey
Salary Increases
Salary increase budgets for 2011 are holding steady geographically across different U.S. states, Wudyka says. However, there’s more variation for 2011 by industry:
- Trending Higher: Accounting, consulting/legal organizations, internet/information companies, energy/utility firms, and chemical manufacturing
- Lagging: Education, metal fabrication, paper manufacturing, and transportation are lagging.
Wudyka cautions readers to be aware when looking at national data that there are going to be variations by industry and geography.
Merit Increases
| HighPerformers(Mean) | HighPerformers(Median) | MiddlePerformers(Mean) | MiddlePerformers(Median) | LowPerformers(Mean) | LowPerformers(Median) | |
| Percentage of employees rated in this category for 2009 | 25% | 21% | 68% | 70% | 7% | 5% |
| Average merit increase awarded in 2009 for this category | 3.2% | 3.5% | 2.1% | 2.5% | 0.7% | 0.0% |
| Percentage of employees rated in this category for 2010 | 24% | 20% | 69% | 70% | 8% | 5% |
| Average merit increase awarded in 2010 for this category | 3.7% | 4.0% | 2.4% | 2.5% | 0.7% | 0.0% |
Source: WorldatWork
These figures are pretty much what you would expect, Wudyka says, and offer more evidence that we are emerging from recession.
As additional data, Wudyka points to a survey of 1,046 U.S. companies conducted by Towers Watson Data Services that found that companies are projecting merit increases of 2.7 percent for 2011, an increase from the 2.3 percent raise workers received in 2010 and 1.6 percent they received in 2009.
Pay Ranges
| EmployeeCategory | 2010 Actual (Mean) | 2010Actual(Median) | 2011Predicted(Mean) | 2011Predicted(Median) |
| Nonexempt hourly nonunion | 1.1 | 0.8 | 1.9 | 2.0 |
| Nonexempt salaried | 1.3 | 1.5 | 2.0 | 2.0 |
| Exempt salaried | 1.2 | 1.0 | 2.0 | 2.0 |
| Officers and executives | 1.2 | 0.0 | 2.0 | 2.0 |
Source: WorldAtWork
This figure is quite low, but still an increase, says Wudyka.
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Variable Pay Programs
| Percent budgeted | NonexemptHourlyNonunion
(Mean) |
NonexemptHourlyNonunion
(Median) |
NonexemptSalaried(Mean) | NonexemptSalaried(Median) |
| 2010 average percent budgeted | 5.3 | 5.0 | 5.7 | 5.0 |
| 2010 projected percent paid | 5.1 | 5.0 | 5.6 | 5.0 |
| 2011 projected percent budgeted | 5.5 | 5.0 | 5.7 | 5.0 |
Source: WorldAtWork
Variable pay systems only pay out when someone produces something valuable to the company. This is not a big change, says Wudyka.
In tomorrow’s Advisor, Wudyka’s take on key compensation trends plus an introduction to the all-in-one compensation website, Compensation.BLR.com.