In 1994, pay for performance will be an increasingly important issue in the workplace, executives will face greater pressure to justify their compensation and entry-level salary increases will lag those of earlier years.
These are among the trends in salaries identified by compensation consultants.
“Pay for performance will be a continued area of interest for companies,” says Ken Abosch, national compensation manager for Hewitt Associates, a Lincolnshire-based compensation consulting firm.
“Organizations in general are looking for the carrot, for something they can dangle in front of employees. They can reward employees through base salary increases and through what’s called results-sharing-making bonuses and incentives available to employees based on company performance.”
Hewitt Associates found that 68 percent of the organizations in its database offered some form of results-sharing in 1993, up from 51 percent the previous year. And Abosch reported that the spending for such programs also is on the rise.
“Organizations see results-sharing as a win-win situation,” he says. “If the company does well, employees benefit and vice versa.”
One common form of results-sharing, Abosch said, is cash profit-sharing. In the event of companywide earnings success, employees are given a cash disbursal that averages 5.5 percent of annual salary.
Another widely used results-sharing program is team and group productivity awards, based on the performance of a specific plant or office within a national company. These awards average 6.4 percent of annual salary, according to Abosch.
Don Andrews, senior manager of technical services for the American Compensation Association in Scottsdale, Ariz., says his organization also has witnessed the trend.
“We’re seeing a lower percentage of increase in base salaries and more money given to alternative awards programs,” he says. “Those programs include gain-sharing practices based on (achievement of) cost savings, productivity improvement, quality improvement and customer satisfaction.”
The lower level of hikes in base salaries will translate to reduced buying power for many employees compared with 1993, reports Hewitt Associates’ Abosch.
In 1993, “we saw an actual increase of 4.3 percent for salaried exempt employees (the salaried segment of the work force not eligible for overtime), compared with a consumer price index, or cost-of-living, increase of 2.9 percent,” he says. “We’re projecting 4.3 percent again this year, and with the consumer price index at 3.1 percent, there will be a slight decrease in purchasing power.”
Hewitt Associates predicts that executives will average 4.4 percent increases in 1994, the same as last year. Clerical (salaried, eligible for overtime) workers’ pay hikes are predicted to be 4.2 percent this year, down from 4.3 percent in 1993, and hourly employees also will average smaller pay hikes, down to 4.0 percent from 4.1.
“Across the board, there’s a less than half-percent difference in increases from hourly to executive,” says Abosch.
“Top officers are getting a lot of scrutiny in terms of salary. There’s a lot of pressure on them to justify awards and salaries they’re given,” Abosch says. “Their group experienced the largest number of salary freezes, and they have also had the greatest decrease over the last few years in their salary budgets.”
Another compensation expert, however, disputes the notion that there is a greater effort to tie salaries to performance, at least for CEOs.
Graef “Bud” Crystal, Lake Tahoe, Nev.-based editor of the Crystal Report, a newsletter on executive compensation, says, “There’s still very little relation between pay and performance among CEOs. They might be trying to make bonuses more sensitive to performance, but getting a CEO to give up something he already has is roughly akin to snatching a piece of filet from a Doberman who hasn’t eaten in a week.”
While there will be fewer promotions among salaried, overtime-exempt (professional and middle-management) employees, some middle managers can expect to find salary hikes tied to lateral moves in the year ahead.
Abosch says that, because organizations have become flatter, there are fewer middle-management slots available-and therefore fewer opportunities for promotion.
“The response of companies has been a concept called `broadbanding,’ in which an employee is moved laterally, but still given a pay hike,” he says. “In years past, the employee would have had to leave the firm to seek different career-development opportunities. Broadbanding removes that obstacle, allowing him or her to seek those opportunities within the same company.”
Research by New York-based Wyatt Co., another compensation consulting firm, showed that while just 6 percent of companies in its 1993 survey now use broadbanding, an additional 4 percent plan to implement such a system and another 31 percent are considering broadbanding.
Among various professions, health care and pharmaceuticals will see lower salary increases than in past years, says Abosch. The projected increase in health-care salaries will drop to 4.1 percent this year from 4.4 percent in 1993, while pay hikes in the pharmaceutical industry will be reduced to 5.0 percent from 5.3.
“The high flyers seem to be accounting, consulting and legal, which we call professional service firms,” he says. “They were 5.7 percent in 1993, and will rise to 5.8 percent in 1994.”
Abosch said there is little variance seen in salary increases among different regions of the country. He points to manufacturing, where salaries will rise 4.2 percent this year in the Midwest, 4.3 percent in the South and 4.4 percent in the East and West.
With the exception of hourly workers, Illinois employees will see pay hikes that roughly mirror the national figures.
According to Joseph Milligan, director of program services for the Illinois Manufacturers’ Association, the largest percentage of private employers in Illinois responding to the organization’s salary survey indicated they would offer raises of 4 to 4.4 percent for salaried workers.
Hourly workers in Illinois likely will realize smaller increases than their counterparts nationally. “The greatest percentage-approximately one in five-of Illinois private employers will provide pay raises of 3 to 3.4 percent to hourly workers,” he says. “Another 17.3 percent will give 4.0 to 4.4 percent increases, and 11.4 percent will provide 2.5 to 2.9 percent.”
The figures, which are based on responses from 600 of the 4,600 member companies in Illinois, are indicative of two employer concerns, says Milligan.
“Employers are still cautious about the economic recovery, and they are considering the spiraling cost of health care,” he notes.
As was the case in 1993, entry-level salaries for college graduates are not expected to rise as substantially as they have in years past.
Dawn Oberman, statistical services specialist with Bethlehem, Pa.-based College Placement Council, an association of college career-placement professionals that conducts annual salary surveys, notes the change has been dramatic among some employers.
“With lower inflation and corporate downsizing, employers have not increased starting salaries as they have in the past,” she says. “Instead of 4 percent increases, we’re seeing a lot of increases in the 2 to 3 percent range, and some of 1 percent.”
