The Astron Road Show
National Director Michael Maciekowich will present on Innovative Compensation at the Iroquois Healthcare Association's annual conference. The meeting will be held September 17 - 19. Click here to receive more information on the conference or to request a copy of Michael's presentation.
And the Magic Numbers Are... 2004 Merit Budget Projections
It's that time of year again! Organizations around the country are preparing their salary budgets for the coming year. In this Astronology, we deliver our annual compensation budget forecast.
Our two central sources are Mercer’s 2003/2004 US Compensation Planning Survey and WorldatWork's indispensable 30th Annual Salary Budget Report. It is worth noting that Mercer's survey considers total increases, whereas WorldatWork's survey breaks their increases down into finer categories (COLA, merit, etc.).
According to Mercer, pay increases across all employee groups averaged 3.3% in 2003; prior to 2002, they averaged over 4% for eight years running. WorldatWork's figures are slightly higher, citing an actual average salary budget increase for all employees of 3.5%. In April 2002, a considerably higher increase of 4.1% was projected.
Organizations participating in the WorldatWork survey also reported a 3.6% actual budget increase for the officer/executive category. 2003's survey is the first in its 30 years that this figure has been less than 4%.
WorldatWork's 2003 total salary increase data for exempt employees in select industry groupings are as follows:
- Healthcare - 4.0%
- Finance and Insurance - 3.7%
- Retail - 3.5%
- Information - 3.5%
- Manufacturing - 3.5%
WorldatWork also predicts that fewer than 83% of employees can expect raises this year, compared with 85% in 2002 and 94% in 2001.
Another historic low has been hit in salary structure increases. In 2003, the average increase to formal base pay structures is budgeted at 2.1%. Only two-thirds of the WorldatWork survey's respondents are planning any increase.
On the positive side, 2003 marks a rise in the use of variable pay. WorldatWork reports that three-quarters of its survey's respondents have some kind of variable pay program in place. While actual incentive paid in 2002 was less than predicted, it represented a slight increase over previous years: hourly workers with variable pay received an average 5.7% of base pay, management 11.7%, and executives 29.8%. Mercer reports that roughly half of all nonexempt employees are eligible for incentive rewards.
Variable compensation has the potential to offset the negative effects caused by restricted pay raises. A variable pay program can improve compensation-related morale, as employees stand to make more money through a merit-based variable pay system than they would with a pay raise. Tying variable pay to productivity or other measures ensures that organizations will see increased revenues and decreased costs as the result of a well-planned variable compensation system. Tying the money saved through improved performance to the money paid out as merit-based bonuses ensures that salary budgets don't increase, creating a win-win situation for all involved.
Mercer also reports that salary freezes are on the decline: 12% of responding organizations reported salary freezes in 2003, compared to 16% in 2002.
Looking ahead, we see increase projections that are generally the same or slightly higher than 2003's actual increases. WorldatWork projects salary budget increases for all employees of 3.7% for 2004. Mercer's predictions for all employees are for pay increases of 3.6% (not counting organizations with salary freezes in effect), with a note that executives can expect an average raise of 3.7% in 2004.
WorldatWork’s industry-specific projections for exempt employees in 2004 are as follows:
- Healthcare - 3.9%
- Finance and Insurance - 3.8%
- Retail - 3.6%
- Information - 3.7%
- Manufacturing - 3.7%
While Consumer Price Index (CPI) figures from April 2002 to April 2003 are low at 2.2%, they are not necessarily perfectly correlated to low salary increases. The CPI for 1998 was lower at 1.4%, and salary budgets were significantly higher that year, between 4.1% and 4.6%. Factors such as the supply and demand of labor for hot jobs and the effects of geographic region on attracting and retaining labor also play into wage increases.
The Department of Labor's seasonally adjusted Employment Cost Index provides the following data on increases in the cost of total compensation:
- Civilian Workers
- Q1 2002 - .9%
- Q2 2002 - 1.0%
- Q3 2002 - .8%
- Q4 2002 - .7%
- Q1 2003 - 1.3%
- Q2 2003 - .9%
- State and Local Government
- Q1 2002 - .8%
- Q2 2002 - .9%
- Q3 2002 - 1.3%
- Q4 2002 - 1.0%
- Q1 2003 - .9%
- Q2 2003 - 1.0%
- Private Industry
- Q1 2002 - .9%
- Q2 2002 - 1.1%
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