Merit budget increases were under 4% in 2006

Merit budget increases were under 4% in 2006 for all employee groups and stayed remarkably in line with budget projections made in 2005, according ORC Worldwideís 2006 Budgets and Structure Adjustments Survey. More than 450 large companies participated in the survey, supplying data for their various domestic U.S. locations, thereby resulting in 1,175 inputs for various cities and regions. The survey covers 26 industries but had notably high participation among companies in the in life sciences and high technology industries, and covered a total of 32 major cities or regions.

ìWe are delighted with the number of participants and depth of data this year,î said ORC President and CEO Robert Freedman. ìWe have conducted this survey for thirty years, and many of our clients rely on it for setting their compensation budgets.î

Projected increases for 2007 hold steady, with an overall budget increase of 3.77%. These increases are forecast to be distributed more evenly across employee categories, with both executives and exempt employees expected to have 3.78% increases and nonexempt employees to have 3.75% increases.

Overall, the actual increase in merit budgets for 2006 was 3.74%. Consistent with previous years, executive budgets were higher, at 3.84%, while the overall budget increase for general exempt employees was 3.76% and 3.71% for nonexempt employees.

The survey also measured 2006 actual and 2007 projected budgets in variable pay, special budgets, structure adjustments, and promotional budgets.

Special Budgets
The use of ìspecial increaseî budgets continues to grow as more companies manage a special budget pool to both align employeesí salaries externally to the market and ease internal compression. Of the 34% of surveyed employers using special budgets to target specific needs, the majority do so to address internal and external equity issues, signifying a reliance on market salary data.

Variable Pay
Of the companies surveyed, 26% reported variable pay budgets in addition to their merit budgets with projections for 2007 up to 9.16% for the exempt group and 7.18% for the nonexempt employee group, suggesting an optimistic outlook for next year. Variable pay represents programs such as incentive and bonus pay (excluding sales programs), group or team awards, and company-wide awards such as gainsharing or cash profit sharing. This year, ORC also collected data on the defined management incentive figures for executives.

Structure Adjustments
Salary structure adjustments continue to reflect approximately 75% of the merit increase budget figures. This year exempt salary structures were adjusted upward by 3% and the same is projected in 2007. Nonexempt structures were adjusted 2.9% in 2006 and are projected to be increased the same in 2006. As in previous yearsí results, a substantial number of participants shifted structure adjustments from an annual to a two-year schedule (structure adjustments reported reflect the 12-month calendar year average adjustment).

Promotional Budgets
Fourty-four percent of the companies surveyed set aside and track a special pool for general and in-family promotions. Both 2006 actual and 2007 projected promotional budgets for exempt and nonexempt employee groups remain at approximately 0.8% of total base payroll. While the percentage may be appear small, only a small percentage of employees actually are promoted throughout a year.