Buck Consultants Survey Finds Higher Salary Increases Expected in 2007

Buck Consultants, an ACS company announced today the results of a national survey of U.S. employers on compensation planning.

Buckís study ìCompensation Planning for 2007î was conducted in the second quarter of 2006. It analyzed responses from more than 370 U.S. organizations on target and actual salary increases. The survey also studied salary range structure, lump sum payments, promotion budgets, short-term incentives, hiring and retention bonuses, and geographic pay differentials.

U.S. employers are planning a slight increase in compensation for the next fiscal year. Target median total salary increases for the next fiscal year are 4.0%, compared with a target of 3.7% to 3.8% for the current fiscal year. The target median increase for CEOs is 4.0% for both the current and next fiscal years.

Ninety-two percent of survey respondents have a salary increase budget, with nearly 80% timing their salary increases at a focal point during the year.

ìCompensation practices continue to evolve, with a greater linking of pay for all employees to business outcomes,î said Larry Reissman, Principal in Buckís compensation consulting practice. ìEach component of compensation is being examined to determine if costs and results are appropriate.î

Twenty-one percent of respondents have a separate promotion budget. The median promotion increases range from 6.0% of base pay for non-exempt employees to 7.8% for directors.

Sixty-nine percent of organizations report having a formal salary range structure. A large majority make salary range adjustments on a 12-month cycle, with a median target adjustment for the next fiscal year of three percent.

ìThe difference between a three percent salary structure adjustment, which approximates changes in labor rates, and a four percent salary increase means an organization has one percent of payroll to truly reward employees,î said Reissman. ìManagers need to spend these dollars wisely if they want to realize a competitive return on this investment.î

The survey found 41% of organizations provide geographic pay differentials. The resources most used to determine the differentials include geographical differential surveys, general market data, and area-specific market surveys.

Eighty percent of organizations offer short-term incentive plans. Targeted spending on short-term incentive plans is expected to be unchanged from prior years, ranging from a median of 5% of base pay for non-exempt employees to 15% for managers and 40% for executives. Targeted spending on CEO short-term incentive plans remains at 80% of base pay.

ìThe performance goals associated with these executive bonus plans are coming under increased scrutiny,î said Reissman. ìThere needs to sufficient stretch in the goals so that awards are truly earned, and the measures better reflect the companyís strategy.î

A majority (56%) of survey respondents offer hiring and/or retention bonuses. Information technology is the corporate function most likely to trigger such a bonus. Hiring bonuses range from a median of 5% of base pay for non-exempt and professional employees to 20% for the CEO. Retention bonuses range from 5.5% of pay for non-exempt employees to 18% for executives.