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2005 Year-End Compensation Survey Reveals Base Salary Uptick Exceeded Projections
11/01/05
By: Stephen Miller, Shrm.org
The average merit/salary increase for all employee functional groups was 4.0 percent in 2005, and 4.2 percent is the average projected merit/salary increase for all groups in 2006, according to a national survey by Compensation Resources Inc. (CRI). The survey sampled year-end compensation data from a variety of organizations, collected in October and November 2005.
Privately held companies reported higher percentages of actual 2005 and budgeted 2006 merit increases overall as compared to publicly traded and not-for-profit organizations.
Below are highlights of this year’s results, including a comparison with the prior year’s findings, showing that actual salary increases in 2005 slightly bested last year's projections.
Merit/Salary Increase
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| 2004 Results
| 2005 Results
| Group
| Actual 2004
| Projected 2005
| Actual 2005
| Projected 2006
| Executive
| 4.3%
| 4.3%
| 4.5%
| 5.1%
| Management
| 3.8%
| 3.8%
| 4.1%
| 4.4%
| Exempt salaried
| 3.6%
| 3.7%
| 4.1%
| 4.0%
| Non-exempt salaried
| 3.5%
| 3.6%
| 3.6%
| 3.7%
| Hourly/production
| 3.5%
| 3.5%
| 3.8%
| 3.8%
| All groups average
| 3.7%
| 3.8%
| 4.0%
| 4.2%
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These results reflect a general rise in merit increase budgets and awards, consistent with the upward swing in the marketplace with regard to labor conditions, according to analysis by CRI. Consistent with these findings is the general expectation of the following corporate events (again, as compared with the prior year’s findings):
Action Experienced
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| 2004 Results
| 2005 Results
| Action
| Actual 2004
| Projected 2005
| Actual 2005
| Projected 2006
| Layoffs
| 28.8%
| 13.5%
| 20.1%
| 11.4%
| Hiring freezes
| 19.8%
| 9.0%
| 14.8%
| 6.7%
| Salary freezes
| 7.2%
| 2.7%
| 9.4%
| 4.7%
| Cutbacks in pay
| 0.0%
| 0.0%
| 3.4%
| 1.3%
| Staffing increases
| 46.8%
| 45.0%
| 50.3%
| 47.7%
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Other Findings
Target awards for short-term incentive plans are much higher in publicly traded companies than at privately held companies and not-for-profits. Also, target awards as a percentage of base salary increase as revenues increase.
Target Awards
Here's an example of how target awards work. The awards are set for each executive as a percentage of base salary. Each year, performance goals for financial, operating and strategic measures are established. Based on company performance results achieved, an incentive pool is established at the end of the year. The amount of the incentive pool is based on the sum of the target awards at the level of corporate performance achieved for each executive.
The incentive pool can range from $0 to a maximum of 150 percent of target awards for all executive participants. The incentive pool initially is allocated among participants based on overall results and their respective target awards. The CEO may then increase or decrease awards based on his or her assessment of each executive’s level of performance and contribution to overall results achieved.
Because the amount of the incentive pool is fixed, discretionary increases to some must be offset by decreases to others.
As for long-term incentive plans, respondents report a general prevalence of cash-based plans within their companies. However, non-qualified stock options are the most commonly provided equity award in publicly traded companies. Stock appreciation rights (SARs) continue to be the least commonly used long-term incentive plan.
In terms of the compensation package mix, base salary remains the largest percentage of the mix among privately held and not-for-profit organizations, followed by annual bonus/incentives and long-term incentives.
On the other hand, there is an increased emphasis on annual bonus/incentives and long-term incentives among publicly traded companies, particularly at the senior management and executive levels, since equity in the form of stock is a readily available commodity within these organizations.
To determine pay strategies, CRI recommends these approaches:
• Understand your employees’ perceptions about the total compensation package your company provides.
• Measure the distinct value of the reward to employee commitment and the organization.
• Communicate to your employees about the business and the financial impacts of their rewards.
And remember, the total compensation package is not just about pay, it's also about the work culture, hours, benefits, career development and promotional increases—and how they balance with the employee’s life outside the organization.
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