The economy’s slow return to health is affecting workers across the nation, and salary increases are one indicator that business is getting better across all vertical markets, including insurance.
Life and health insurers are edging out property/casualty carriers in pay hikes this year and are projected to top that sector again in 2012, according to
And while the projected increase is a slight uptick in salary increases in 2012 compared to 2011, companies will continue to place the greatest focus on variable pay, says the firm.
The survey notes that in the life and health sector, increases for salaried exempt (employees who do not receive overtime pay) are currently pacing at 2.7 percent, with a projected increase in 2012 to 2.9 percent.
In the property/casualty sector, current pay increases for salaried exempt employees is at 2.6 percent, with a projected increase in 2012 to 2.7 percent.
The results come from a survey of 1,494 large U.S. companies in June and July, which revealed the 2.9 percent base salary increase projection in 2012 for salaried exempt employees, executives, salaried nonexempt (employees who receive overtime pay) and non-union hourly workers. This is up slightly from 2011 for all groups – salaried exempt (2.7 percent), executive (2.8 percent), salaried nonexempt (2.8 percent) and non-union hourly (2.7 percent), and more than a percentage point better than the record-low pay raises workers saw in 2009 (1.8 percent).
“Three percent is the new 4 percent, meaning we are not likely to be back to the 4 percent levels of the late 1990s any time soon,” said Ken Abosch, Aon Hewitt’s compensation group leader. “Employees should also keep in mind that despite employers anticipating increases, if current economic conditions continue, the 2012 projections may come in lower than anticipated.”
Another encouraging sign that economic ills are waning is the drop in the number of salary freezes. The number of companies freezing salaries is down for the second year in a row, and this trend is expected to continue into 2012, reports Aon Hewitt. In 2011, 5 percent of organizations froze salaries, compared to 21 percent in 2010 and nearly half (48 percent) in 2009. Approximately 4 percent of employers anticipate salary freezes in 2012.
Perhaps the most obvious way companies have fought to keep employees during rough economic times is the prevalence of variable pay plans. Variable pay plans, or performance-based award programs where the award must be earned each year, reached an all-time high in 2011, with 92 percent of employers implementing this type of program. This is a significant increase compared to 2005, when just 78 percent of employers offered variable pay. Variable pay programs can include non-cash incentives, such as additional time off, and cash incentives.
But Aon Hewitt acknowledges that economic pressures have had a slight impact on variable pay this year, as organizations had anticipated spending 11.8 percent of payroll on these programs for salaried exempt employees. Instead, employers have earmarked 11.6 percent of payroll for variable pay this year. Spending in 2012 is expected to dip slightly to 11.5 percent.
Aon Hewitt’s survey also shows the majority (86 percent) of employers will fund variable pay based on company performance, though some are funding it through reduced merit increases and reductions in head count (5 percent each). Just 2 percent of companies are budgeting for variable pay through reduced spending on benefits, while only 1 percent is doing so through pay freezes.
“The growing use of variable pay, along with lower salary increases, represents the new normal in compensation practices for employers nationwide,” explained Abosch. ”This pay mix creates greater motivation for employees to be productive and greater flexibility for employers to compensate based on individual and company performance. However, this does create a need for performance discussions throughout the year, so employees know what they are doing well and areas for improvement in order to maximize productivity and potential pay opportunity.”
Aon Hewitt’s survey also revealed where in the United States cities can expect to see salary increases higher than the national average in 2012. These cities include Detroit (4.0 percent), Dallas (3.4 percent), Chicago (3.0 percent), Houston (3.0 percent) and Milwaukee (3.0 percent). Cities that can expect lower-than-average increases in 2012 include Washington, D.C. (2.8 percent), New York (2.7 percent) and Philadelphia (2.7 percent).
Further, industries that can expect to see the highest salary increases in 2012 include energy/oil/gas (3.6 percent), real estate (3.6 percent), construction/engineering (3.5 percent), telecommunications (3.2 percent) and not-for profit (3.2 percent). The lowest increases are projected to be in government (1.7 percent), building materials (2.5 percent), research/development (2.5 percent), rubbers/plastics/glass (2.6 percent) and education (2.6 percent).
Historical U.S. Salary Increases | ||||||
| 2007 | 2008 | 2009 – Record Low | 2010 | 2011 | 2012 – Projected |
Executives | 4.0% | 3.9% | 1.4% | 2.4% | 2.8% | 2.9% |
Salaried exempt | 3.7% | 3.7% | 1.8% | 2.4% | 2.7% | 2.9% |
Salaried nonexempt | 3.6% | 3.7% | 1.9% | 2.4% | 2.8% | 2.9% |
Nonunion hourly | 3.6% | 3.6% | 2.0% | 2.4% | 2.7% | 2.9% |
Union | 3.3% | 3.4% | 2.2% | 2.5% | 2.6% | 2.7% |
