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November 09, 2010
Pay Freezes Begin Their Thaw

Buck Consultants released encouraging survey results in October 2010. According to their research, 76% of organizations that froze pay during the prior 18 months have lifted those freezes, or said they intend to by the end of 2010. In “Compensation Planning for 2011,” Buck reports that workers may be able to expect pay increases next year, modest though they may be. Salary increases will average 2.8% in 2011, up from 2.5% in 2010 and a paltry 1.8% in 2009, says the survey.

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“Employees shouldn’t expect big gains in pay until there is a sustained economic recovery and significant improvement in the unemployment rate,” said Tom Burke, principal at Buck Consultants. “In fact, employers may revert back to pay freezes if economic stability and sustained growth do not occur.”

Pay-for-performance continues to increase in popularity as a method of rewarding top performers: 87% of surveyed companies offer pay-for-performance at some level. The most prevalent type of short-term incentive program is a company-wide incentive plan with an individual performance component.

But many survey respondents report that they have shifted compensation dollars in order to allocate more money to their highest performers. In past years, roughly 10% of responding firms said they directed more merit funds toward these stars; in the most recent survey, one-third to one-half (depending on the employee level) are doing so.

Employees in the bonus pool have reason to be optimistic, too, according to the survey. Payments for 2010 performance for executives, directors, managers, and other exempt employees are expected to exceed bonuses paid for 2009 performance.

“There is mounting concern that employees will seek new opportunities as soon as the job market improves,” said Burke. “Compensation-related retention strategies are becoming increasingly important.” To avoid an exodus of experience, companies are using strategies like new career development opportunities (34%), market pay adjustments (27%), increased non-cash recognition (19%), larger bonus opportunities (13%), additional company stock (12%), and retention bonuses (12%).

Survey results suggest that rank-and-file workers can expect a better 2011 than can executives – at least in terms of raises. Between 70% and 80% of employees can expect pay raises, compared to just 57% of executives.

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