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October 29, 1999
Moderate U.S. Salary increases in the Year 2000
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expect significant increases in Variable Pay

Employees shouldn't count on a huge raise in the Year 2000, but next year's performance-related bonuses could pick up the slack. According to the 23rd annual Hewitt Associates U.S. Salary Increase Survey, average salary increases for the Year 2000 are projected to be 4.2 percent for salaried exempt employees, 4.1 percent for salaried non exempt employees, 3.9 percent for non union hourly employees and 4.4 percent for executives.

Moderate U.S. salary increases, however, are overshadowed by a projected 16 percent jump in company spending on variable compensation plans (Variable compensation plans are performance-related awards that must be earned each year and do not permanently increase base salary.) According to Hewitt's study, companies are planning to spend 9.6 percent of payroll on performance rewards in 2000, compared to 8 percent in 1998, and 6.4 percent in 1994

"Rather than permanently adding to fixed costs through salary increases, more employers across all industry segments are using variable compensation to reward their top performers," said Ken Abosch, compensation business leader for Hewitt Associates. "For companies, variable pay is attractive because the plans are self-funding, paying out awards when individual, group or business goals are attained. For employees, the trend of variable compensation means that they have a greater opportunity to share in their companies' success."

Use of Variable Pay Continues to Increase

According to the survey of 1,133 employers nationwide, 70 percent of employers in 1999 reported offering at least one variable pay plan, up from just 47 percent in 1990. Of the 70 percent of companies with variable pay plans, special recognition awards tended to be the most common (54 percent), followed by business incentives (53 percent), individual performance awards (45 percent) and stock options/ownership programs (36 percent). Prevalence of all variable pay plan types increased from 1998.

"Since the typical large company spends an average of just over $30 million on variable pay plans a year, the spending increases are significant, both for companies and employees," said Abosch. "With salary increases relatively low, the size of an employee's variable pay award or bonus is becoming the new measuring stick to determine how well people are doing in their roles."

Companies Struggling to Find, Keep IT Employees

While the average employee will most likely not receive a huge salary increase next year, the same cannot be said for IT employees, and other employees with skills in high demand. Nearly all companies responding (96 percent) reported feeling the most pressure in attracting and retaining Information Technology employees. Other areas in which employers are having difficulty attracting and retaining employees include Engineering (27 percent), Finance (21 percent), Sales (14 percent) and Marketing (11 percent).

"With the shortage of IT employees and the additional pressure brought on by the Y2K issue and the push for e-business solutions, it's no surprise that companies are struggling to find and keep their IT employees," commented Abosch.

"As long as demand remains high and supply remains low--and we have every reason to believe it will--IT employees can expect significant salary increases and bonuses for the next several years to come."

The full report, the 1999 and 2000 Salary Increase Survey Report, is available for $125 from the Publications Desk at Hewitt Associates, 100 Half Day Road, Lincolnshire, Ill., 60069, (847) 295-5000.

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