New study predicts bonus, salary increases for 2000

Employees shouldn't count on a huge raise in 2000, but next year's performance-related bonuses could pick up the slack.

According to Lincolnshire, Ill.-based global management consulting firm Hewitt Associates' 23rd annual salary increase survey, average salary increases in the next year are projected to be slightly more than 4 percent for both salaried exempt and nonexempt employees, slightly less than 4 percent for nonunion hourly employees and about 4.5 percent for executives.

Moderate salary increases, however, are overshadowed by a projected 16 percent jump in company spending on variable compensation plans, which 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 all across industry segments are using variable compensation to reward their top performers," said Ken Abosch, compensation business leader for Hewitt Associates, in a release.

"For companies, variable pay is attractive because the plans are self-funding, paying out awards when individual, group or business goals area attained. For employees, the trend of variable compensation means that they have a greater opportunity to share in their companies' success," he added.

Use of variable pay continues to increase. According to the survey of 1,133 employers nationwide, 70 percent of employers reported offering at least one variable pay plan in 1999, up from just 47 percent in 1990.

Of the 70 percent of companies with variable pay plans, special recognition rewards 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," Abosch said. "With salary increases relatively low, the size of employees' 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 information technology employees and other employees with skills in high demand.

Nearly all companies responding reported feeling the most pressure in attracting and retaining IT employees. Other areas in which employers are having difficulty attracting and retaining employees include engineering, finance, sales and marketing.

"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," Abosch said.

"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," he said.