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September 12, 2003
Study: Record Lows for Salary Increases in 2003
Average salary increases continued to fall this year, reaching their lowest level in 27 years, according to a study by Hewitt Associates, a human-resources outsourcing and consulting firm.

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In 2003, average salary increases were 3.4 percent for salaried exempt employees, 3.3 percent for salaried nonexempt employees, 3.3 percent for nonunion hourly workers and 3.5 percent for executives, according to the firm, which has been tracking data for 27 years. The firm surveyed 1,276 companies nationwide for the study.

Salary increase projections for 2004 are slightly higher than the 2003 numbers, with estimates of 3.6 percent for salaried exempt employees, 3.5 percent for salaried nonexempt employees, 3.5 percent for nonunion hourly workers and 3.7 percent for executives. While increases are projected to be somewhat higher next year, they are down from the recent high-level mark of 2001, when base salary increases were 4.3 percent for salaried exempt employees, 4.2 percent for salaried nonexempt employees, 4.0 percent for nonunion hourly workers and 4.5 percent for executives.

Meanwhile, 8 percent of organizations in this Hewitt study reported a salary freeze in 2003, but only 2 percent expect to take this type of action in 2004.

"As 2003 unfolded, cost containment became the theme for most companies, resulting in a base salary slide and the first-ever dip in variable pay spending," says Ken Abosch, a business leader for Hewitt Associates. "That said, companies are still looking for impactful ways to motivate and reward for performance, so variable pay continues to be a good option, despite the fact that companies are spending less on these programs."

Variable-Pay Programs

While companies continue to offer variable pay (a performance-related award that must be re-earned each year and does not permanently increase base salary), they are cutting back on the amount of spending. According to Hewitt, 77 percent of surveyed organizations currently have at least one type of broad-based variable pay plan in place, which is consistent with last year, when 80 percent of organizations offered variable pay, and up from 1995, when just 59 percent of companies had this type of program. However, company spending on variable pay for salaried exempt employees dropped to an average of 8.8 percent of payroll in 2003 and is expected to reach only 9.0 percent of payroll in 2004. This is down from the record highs in variable-pay spending of 10.8 percent of payroll in 2001 and 10.5 percent in 2002.

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