Library
August 20, 2001 Issue It's Time...2002 Compensation Budget PlanningIt's August. Like Sports Illustrated's annual football predictions, it is time for predictions on 2002 salary budgets. Last year we wrote of budgeting separately for "hot" jobs and not reflecting this in "average" budget adjustment forecasts. The same holds true for 2002. The key to the future is the present. 2001 saw a rising consumer price index. In 1999, the consumer price index rose to 2.7%, and in 2000, to 3.4%. During the first six months of 2001, the index was continuing its inflationary move and stood at 3.72%. However, the following appeared in the August 17, 2001 New York Times: "The Labor Department announced Thursday that the consumer price index declined 0.3% in July from June, its steepest rate drop in 15 years. Core prices rose .02%. The sharp drop was attributed to the decline in gasoline prices, which resulted in a 5.6% decline in energy prices. Overall, the index rose 2.7% over the same period last year. In a separate report, the number of people filling unemployment claims fell by 8,000 in the week of August 11th." The Bureau of Labor Statistics reported that the overall non-farm payroll increased 5.3% over this same period in 2000. Overall, this data sets the tone for recommending adjustments for 2002 and impacts the decisions of those making approvals. Let's start by taking a look at trends in union contracts. According to a recent Institute of Management and Administration (IOMA) study, 2001 increases are well above those for the same time period in 2000. The weighted average increase nationwide stands at 4.9%, compared to 3.5% last year. If lump sum payments are added in, the current average is 5.2%, compared to 4.1% last year. In addition to the jump in pay adjustments, there has been increased activity in introducing merit pay programs in union contracts. For example, a contract covering 125,000 city workers in New York City includes a pay for performance plan. The contract states "the union acknowledges the employer's right to pay additional compensation for outstanding performance and the city must notify the union of its intent to pay such additional compensation." IOMA was surprised by the dramatic increase in negotiated base adjustments and foresees this as a trend into 2002. For more information log on to www.ioma.com. Now let's look at budget predictions from the large consulting houses. William M. Mercer reports employers currently plan to grant raises at 4.3% in 2002. Data from their national survey of 1,500 organizations, representing 14 million U.S. workers, revealed that increases in 2001 are running at 4.4%. Budgets for executives will be set at 4.4% and for non-union hourly at 4.1%. There is some variation by industry. Computer/software services are budgeting 5.6%, legal/accounting services 5.1%, agricultural based industry 3.7%, and mining/milling 3.9%. They further report organizations are incorporating non-traditional pay methods in 2002 budgets, including incentive-based compensation and lump sum payouts. For more details log on to www.imercer.com. Watson Wyatt released information from recent surveys impacting supervisory staff, office personnel, professional and scientific personnel, and top management. They found supervisory base compensation increased 5.2%, office personnel 5.2%, professional and scientific personnel 5.4%, and executives 5.8%. All these are far ahead of the 4.0% to 4.5% predictions at this same time last year. Watson Wyatt sees these current levels continuing in 2002. For more details visit http://www.wwds.com/. Hewitt Associates issued a report on the continuing dilemma of "hot" IT jobs. Hewitt reports past base pay adjustments have averaged 7.5% over the past 12 months, even with recent cutbacks and layoffs. They see this trend continuing in 2002. This leads us to what is considered the authoritative compensation study, the WorldatWork 2001-2002 Total Salary Increase Budget Survey. The following are highlights from this study.
Astron Solutions sees a trend focusing more on the "ability to pay" part of compensation budgeting. In essence, our clients are entering the 2002 budget process focusing on what they will be able to afford in 2002, with Human Resources making the determination as to the most effective method of distributing these dollars. When this occurs, we recommend that strategic compensation decisions be made, focusing first on positions that have a strategic impact on the success or viability of the organization. Once decided, the remaining funds can be equally distributed to remaining staff. We also recommend that these organizations develop "alternative compensation strategies," such as self-funded incentive programs, to provide opportunity for additional compensation without impacting the compensation budget. We foresee overall base compensation budgets at no less than 5%. This includes the need to budget higher percentage for key positions such as IT, Engineering, and Registered Nurses, Pharmacists, and Radiology Techs. We recommend setting aside 8% for these hot jobs and 4.5% for other jobs. We also foresee the same trend reported by WorldatWork in the establishment of some form of variable pay. With many unknowns facing the country economically, we see variable compensation, especially self-funded programs, as the best way for organizations to provide recognition opportunities. Even with layoffs and business failures, base salaries are increasing at a higher level than predicted. The keys are to decide the strategic nature of each position, determine what will be necessary to attract and retain employees in these positions, incorporate variable compensation opportunities, and link these to the organization's ability to fund the program. Reader Poll Archive
Wonder what your fellow readers think about critical HR topics? Is your organization unique from or similar to others?Click here to view the results of our past polls!
Have a Question?
If you have a topic you would like addressed in Astronology, or some feedback on a past article, don't hesitate to tell us! Simply reply to this e-mail. See your question answered, or comments addressed, in an upcoming issue of Astronology.
Looking for a top-notch presenter for your human resource organization's meeting? Both Jennifer Loftus and Michael Maciekowich present highly-rated sessions on a variety of compensation and employee retention issues. For more information, send an e-mail to info@astronsolutions.com.
Are you reading a pass-along copy of Astronology? Click on
this button
Send inquiries to info@astronsolutions.com or call 800-520-3889, x105.
The Fine Print
We hold your e-mail address in trust. Astron Solutions promises never to share or rent your personal information. We also promise never to send you frivolous e-mails and will allow you to leave our list, at your option, at any time.
To remove yourself from this list, please follow your personalized subscriber link at the bottom of your Astronology alert e-mail. Copyright 2007, Astron Solutions, LLC ISSN Number 1549-0467 |
||
