Compensation Planning Report 2011

Compensation Planning Report 2011

Compensation Planning Report 2011 ISSN Pending This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles, jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations. For inquiries about purchasing multiple copies of this report, please contact: Matthew Sottong, Research Director (msottong@bna.com)

s Table of Contents List of Figures... About the Authors... About this Report... v xi xii Section I: Setting and Managing 2011 Merit Increase and Bonus Budgets... 1 Merit Raises for 2011 Projected at a Modest 2.7 Percent... 3 Executive Merit Pay Increases at Record Low of 3.6 Percent for 2011... 10 Companies Plan Bonuses for 2011... 16 Salary Increase Budgets: 2010 Updates and 2011 Forecasts... 23 Four Surveys Find 2011 Salary Increase Budgets Remain Around 2.5 Percent to 3 Percent... 26 Hewitt Associates Survey: Companies Trim Raises & Bonuses for 2010, Expect Rebound for 2011... 32 Over Half of Firms Plan Salary Range Movements for 2011... 34 Section II: Setting and Managing 2011 Compensation Strategy... 43 Trio of Experts Forecast Compensation Trends, Cost-Saving Measures for 2010... 45 Increases to Rebound & Pay Freezes to Thaw in 2011... 49 Responding to Economy: Reduce, Restructure, and Redefine Responsibilities... 56 Efforts to Control Compensation Costs: Companies Cut Pay & Focus on High Performers... 66 Companies Top Compensation Concerns... 79 Organizations Set Compensation Budgets Late in the Year... 97 Companies Prepare for Future with Comp Plan Changes and More Training... 106 HR Relies on Many Data Sources to Determine Pay Levels... 118 Upper Management Works with HR to Set Compensation... 127 Companies Cut More Staff but Offer Severance Pay... 134 Half of All Companies Use Technology & Plan Compensation... 139 iii

Compensation Planning Report 2011 Gender Pay Gaps and the Effects of the Ledbetter Law... 150 Executive Pay Declines as Much as 30 Percent... 157 Section III: Setting and Managing a 2011 Performance Strategy... 163 Identifying and Rewarding High Performers with Performance Management... 165 Strategic Use of Variable Pay to Reward and Retain Employees... 170 Communication and Incentives to Counter Recession Fatigue... 181 Rewarding Employees When the Budget is Tight... 183 Appendices... 187 Appendix 1: Survey Resources... 189 Appendix 2: Cost Cutting Measures Undertaken by Surveyed Firms... 191 iv

s List of Figures Section I Figure 1.1: Expected Average and Range of Merit Increases (for fulltime, mid-level employees, including non-top executives) for 2011, by Number of Employees... 4 Figure 1.2: Actual Average and Range of Merit Increases (for full-time, mid-level employees, including non-top executives for 2010, by Number of Employees... 4 Figure 1.3: Expected Average and Range of Merit Increases (for fulltime, mid-level employees, including non-top executives) for 2011, by Industry... 5 Figure 1.4: Actual Average and Range of Merit Increases (for full-time, mid-level employees, including non-top executives) for 2010, by Industry... 6 Figure 1.5: Expected Average and Range of Merit Increases (for fulltime, mid-level employees, including non-top executives) for 2011, by Region... 6 Figure 1.6: Actual Average and Range of Merit Increases (for full-time, mid-level employees, including non-top executives) for 2010, by Region... 7 Figure 1.7: Expected/Actual Average and Range of Merit Increases (for full-time, mid-level employees, including non-top executives) for 2011, by Industry and Size... 8 Figure 1.8: Expected Average and Range of 2011 Merit Increases for Top Executives, by Number of Employees... 10 Figure 1.9: Actual Average and Range of 2010 Merit Increases for Top Executives, by Number of Employees... 11 Figure 1.10: Expected Average and Range of 2011 Merit Increases for Top Executives, by Industry... 12 Figure 1.11: Actual Average and Range of 2010 Merit Increases for Top Executives, by Industry... 13 Figure 1.12: Expected Average and Range of 2011 Merit Increases for Top Executives, by Region... 14 v

Compensation Planning Report 2011 Figure 1.13: Actual Average and Range of 2010 Merit Increases for Top Executives, by Number of Employees... 14 Figure 1.14: Percentage of Companies Offering Bonus or Other Incentive Pay in 2011 by Industry... 17 Figure 1.15: Projected Bonus or Incentive Pay Amounts for 2011 by Industry... 17 Figure 1.16: Percentage of Companies Offering Bonus or Other Incentive Pay in 2011 by Workforce Size... 18 Figure 1.17: Projected Bonus or Incentive Pay Amounts for 2011 by Workforce Size... 19 Figure 1.18: Percentage of Companies Offering Bonus or Other Incentive Pay in 2011 by Region... 19 Figure 1.19: Projected Bonus or Incentive Pay Amounts for 2011 by Region... 20 Figure 1.20: Will your company offer bonus or other incentive pay in 2011? By Number of Employees and Region... 21 Figure 1.21: Global Overview of Base Salary Increases... 24 Figure 1.22: Median Salary Budget Increases, by Employee Category... 26 Figure 1.23: Merit Increases Awarded, by Performance Category... 27 Figure 1.24: Median Salary Structure Increases, by Employee Category... 28 Figure 1.25: Average Base Pay Increases by Employee Group... 28 Figure 1.26: Median Short-Term Incentive Payouts... 29 Figure 1.27: Average Base Pay Increases by Select Industry... 30 Figure 1.28: Historical U.S. Salary Increases... 32 Figure 1.29: Are you planning on making changes to salary ranges?... 34 Figure 1.30: Are you planning on making changes to salary ranges? By Industry... 36 Figure 1.31: Projected Salary Change Percentages by Industry... 37 Figure 1.32: Are you planning on making changes to salary ranges? By Workforce Size... 38 Figure 1.33: Projected Salary Change Percentages by Number of Employees... 38 Figure 1.34: Are you planning on making changes to salary ranges? By Region... 39 vi

Figure 1.35: Projected Salary Change Percentages by Region... 39 Figure 1.36: Projected Salary Change Percentages by Workforce Size and Region... 41 Section II Figure 2.1: Did you company reduce planned increases for 2010 in response to economic changes? By Industry... 49 Figure 2.2: Percentage of Companies That Reduced Planned Increases for 2010 in Response to Economic Changes by Industry... 50 Figure 2.3: Percentage of Companies That Reduced Planned Increases for 2010 in Response to Economic Changes by Workforce Size... 51 Figure 2.4: Percentage of Companies That Reduced Planned Increases for 2010 in Response to Economic Changes by Region... 51 Figure 2.5: Were pay cuts or freezes enacted for all employees or only select employee groups?... 52 Figure 2.6: Were pay cuts or freezes enacted for all employees or only select employee groups? By Industry... 53 Figure 2.7: Were pay cuts or freezes enacted for all employees or only select employee groups? By Workforce Size... 54 Figure 2.8: Were pay cuts or freezes enacted for all employees or only select employee groups? By Region... 55 Figure 2.9: Company Response to the Poor Economy... 57 Figure 2.10: Categories in Which Companies Had the Most Success in Controlling Compensation Costs During the Past Year, by Industry... 58 Figure 2.11: What other steps, if any, were taken to adjust to the economic situation by Workforce Size... 60 Figure 2.12: What other steps, if any, were taken to adjust to the economic situation by Region... 62 Figure 2.13: Will you restore pay levels in 2011?... 64 Figure 2.14: Compensation Cost Control Measures... 67 Figure 2.15: Categories in Which Companies had the Most Success in Controlling Compensation Costs During the Past Year, by Industry... 69 Figure 2.16: Categories in Which Companies had the Most Success in Controlling Compensation Costs During the Past Year, by Workforce Size... 71 vii

Compensation Planning Report 2011 Figure 2.17: Categories in Which Companies had the Most Success in Controlling Compensation Costs During the Past Year, by Region... 73 Figure 2.18: Biggest Compensation Problem in the Last 18 Months... 79 Figure 2.19: Biggest Compensation Problem in the Last 18 Months by Industry... 81 Figure 2.20: Biggest Compensation Problem in the Last 18 Months by Workforce Size... 84 Figure 2.21: Biggest Compensation Problem in the Last 18 Months by Region... 87 Figure 2.22: Solutions to Compensation Problems... 89 Figure 2.23: Solutions to Compensation Problems by Industry... 90 Figure 2.24: Solutions to Compensation Problems by Workforce Size... 92 Figure 2.25: Solutions to Compensation Problems by Region... 94 Figure 2.26: Month That Merit Increase Budget Planning Decisions Are Made... 98 Figure 2.27: Month That Merit Increase Budget Planning Decisions Are Made by Industry... 100 Figure 2.28: Month That Merit Increase Budget Planning Decisions Are Made by Workforce Size... 102 Figure 2.29: Month That Merit Increase Budget Planning Decisions Are Made by Region... 104 Figure 2.30: Compensation Plans for the Next 12 Months... 106 Figure 2.31: Compensation Plans for the Next 12 Months by Industry... 108 Figure 2.32: Compensation Plans for the Next 12 Month by Workforce Size... 110 Figure 2.33: Compensation Plans for the Next 12 Months by Region... 112 Figure 2.34: Company Use of Data Sources to Assist with Compensation Planning... 119 Figure 2.35: Company Use of Data Sources to Assist with Compensation Planning by Industry... 121 Figure 2.36: Company Use of Data Sources to Assist with Compensation Planning by Workforce Size... 123 Figure 2.37: Company Use of Data Sources to Assist with Compensation Planning by Region... 125 viii

Figure 2.38: Who is involved in the planning process? By Industry... 128 Figure 2.39: Who is involved in the planning process? By Workforce Size... 130 Figure 2.40: Who is involved in the planning process? By Region... 132 Figure 2.41: Percentage of Firms Offering Severance Pay by Industry... 135 Figure 2.42: Percentage of Firms Offering Severance Pay by Workforce Size... 136 Figure 2.43: Percentage of Firms Offering Severance Pay by Region... 136 Figure 2.44: Size of Severance Pay Packages by Industry... 137 Figure 2.45: Size of Severance Pay Packages by Workforce Size... 138 Figure 2.46: Size of Severance Pay Packages by Region... 138 Figure 2.47: Percentage of Firms that Use HR Technology in Compensation Planning and Management by Industry... 139 Figure 2.48: Percentage of Firms that Use HR Technology in Compensation Planning and Management by Workforce Size... 140 Figure 2.49: Percentage of Firms that Use HR Technology in Compensation Planning and Management by Region... 140 Figure 2.50: Type of HR Technology Used, by Industry... 142 Figure 2.51: Type of HR Technology Used, by Workforce Size... 144 Figure 2.52: Type of HR Technology Used, by Region... 146 Figure 2.53: Percentage of Companies Using Software/Web Applications for Other HR Functions... 147 Figure 2.54: Percentage of Companies Using Software/Web Applications for Other HR Functions by Industry... 147 Figure 2.55: Percentage of Companies Using Software/Web Applications for Other HR Functions by Workforce Size... 148 Figure 2.56: Percentage of Companies Using Software/Web Applications for Other HR Functions by Region... 149 Figure 2.57: Do you think any gender-based pay gap exists within you company?... 150 Figure 2.58: Do you think a gender-based pay gap exists in other companies?... 150 Figure 2.59: Gender-based Pay Gap by Industry... 151 Figure 2.60: Gender-based Pay Gap by Workforce Size... 152 ix

Compensation Planning Report 2011 Figure 2.61: Gender-based Pay Gap by Region... 152 Figure 2.62: Has your company been affected by the Lilly Ledbetter Fair Pay Act or other pay equity laws? By Industry... 155 Figure 2.63: Perspectives on Executive Pay... 158 Figure 2.64: Top Five CEOs: Annualized Total Return on CEO Compensation... 159 Figure 2.65: Five Worst Performing CEOs: annualized Total Return on CEO Compensation... 159 Figure 2.66: CEO Compensation, By Industry... 160 Section III Figure 3.1: Is your company concerned about attracting and retaining employees? By Industry... 170 Figure 3.2: Is your company concerned about attracting and retaining employees? By Workforce Size... 171 Figure 3.3: Is your company concerned about attracting and retaining employees? By Region... 172 Figure 3.4: What measures has your firm taken to attract or retain? By Industry... 173 Figure 3.5: What measures has your firm taken to attract or retain? By Workforce Size... 175 Figure 3.6: What measures has your firm taken to attract or retain? By Region... 177 Figure 3.7: If you utilize bonuses to attract and/or retain, what bonus types do you use?... 179 x

s About the Authors Matthew R. Sottong Director of Surveys and Research Reports Mr. Sottong has been with BNA since 2007. He provided editorial direction and oversight of the project. Laime Vaitkus Editor Laime Vaitkus is the editor of IOMA s Report on Salary Surveys, a position she has held for 16 years. She is also involved in two of IOMA s top-selling reports, the annual Compensation Planning Guide, and the Guide to HR Benchmarks. Vaitkus is a regular contributor to the HR ezine, and arranges topics and speakers for IOMA s compensation webinars and live conferences. She researched and wrote the report. Laura Hagmann Editor Ms. Hagmann has been with BNA since 2010, and was responsible for copyediting the report. Cordelia Gaffney Graphics Director Ms. Gaffney designed the graphs and cover for this report. xi

Compensation Planning Report 2011 s About This Guide IOMA s Compensation Planning Report 2010-2011 provides a comprehensive look at setting and managing merit pay increases, overall compensation strategy, and performance strategy. Anchored by data obtained through IOMA s Setting and Managing 2011 Compensation survey, the report synthesizes data from several merit pay budget forecast surveys and compensation studies to provide you with up-to-date and complete information to aid in your compensation planning activities. IOMA s Setting and Managing 2011 Compensation survey, sponsored annually by the Report on Salary Surveys newsletter, queried nearly 300 human resources professionals and others involved in compensation planning in organizations throughout the United States. This survey was conducted in June and July of 2010. The goal of the survey was to ascertain the 2011 planned and 2010 actual merit pay increases and bonuses for midlevel employees and executives, as well as salary range movements. The study also examines tried-and-true strategies for controlling compensation costs and reveals real-life examples of what techniques and tips actually help to save money. The survey takes a look at organizations top compensation-related concerns and what actions they took to resolve their most pressing issues. This study also investigated what steps organizations took to manage through the extended economic downturn, and how they are positioning themselves to respond to whatever the future may bring. The survey covers what salary information sources are most commonly referred to, the technology that companies use to plan compensation, who is involved in setting and planning compensation, when pay budgets are set, and views on gender pay gaps. The survey examines concerns about retaining key employees and attracting new job candidates and the steps companies are taking to achieve both. Pay for performance is a strong underlying theme in this year s survey, which is why a section on pay for performance strategies is included. Compensation is a major expense for any organization, but at the same time, it can be a vital tool to drive organizational change and create success. However, with budgets still strained, it can be beneficial for companies to find alternatives to the traditional annual raise. This guide endeavors to help organizations explore ways they can attract, retain, and engage employees while containing compensation costs. xii