Compensation budgets are expected to stay intact in 2011, and few companies plan to take extreme measures, including pay freezes to lower costs, finds a new Aon Hewitt survey of more than 500 employers.

Three-quarters of companies also anticipate hitting or surpassing business performance goals this year, the survey also reveals, causing pay and variable pay budget stabilization in 2011. Fifty-six percent of companies made no modification to their original base salary increase budgets, and those are projected to reach their highest levels in two years. Salary raises for salaried exempt workers, who are excluded from overtime rules, are predicted to hit 2.8 percent in 2011 - up from 2.4 percent in 2010, and 1.8 percent in 2009 when employees faced record-low pay raises.

"Prior to the recession, companies were optimistic about their compensation budgets but, ultimately, scaled back from their original projections in an effort to control costs," says Ken Abosch, marketing strategy and development leader in Aon Hewitt's Broad-Based Compensation Consulting practice. "As business performance increases, organizations are more comfortable with stabilizing salary budgets.

"That said, we will not see base pay raises return to pre-recession levels, as these sub-3 percent increases represent the new 'normal' in base-pay spending."

Additionally, variable pay spending is also stable. New results predict 2011 variable pay spending as a percentage of pay roll will hit 11.6 percent for salaried exempt workers, a slight decrease from original estimates of 11.8 percent.

"We'll continue to see employers move toward compensation models that reward employees for strong business and individual performance," Abosch says. "Despite economic instability, employers spent more on variable pay in the past three years than they ever have before.

"Workers should be encouraged that there are still compensation dollars out there, but they will be expected to show strong results to earn them."

No surveyed company plans to cut pay in 2011, the survey finds, and only 11 percent anticipate freezing salaries for salaried exempt and nonexempt workers next year. This figure is comparable to 2010, when 12 percent of companies enacted salary freezes.

Instant Insights /

2011 compensation budgets stabilizing, according to survey

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