Will Salaries Rise in '08?

If you're expecting a big salary increase next year, you might be slightly disappointed to hear that the projections for overall salary increases across the nation are relatively modest, based on a 2008 survey by Hewitt Associates, a human resources services company.  In light of this news, however, performance-based bonuses will be at an all-time high, and more companies today are utilizing these performance-based bonus programs than ever before.

According to Hewitt's recent survey of 1,007 large organizations, salaried exempt employees should expect an average salary increase of 3.8 percent in 2008, compared with 3.7 percent this year and 3.6 percent in 2006.   Salaries are projected to increase by 3.9 percent for executive employees, by 3.7 percent for both salaried non-exempt and non-union hourly employees, and by 3.3 percent for union employees.

Depending on the city where they work, employees could see salary increases that are above the national average.  According to Hewitt's findings, the average salary increase for workers in Washington, D.C. will be as high as 4.9 percent, followed by Houston at 4.6 percent, Dallas at 4.1 percent and Denver and Los Angeles, both at 4 percent.  On the other end of the spectrum, workers in Detroit and Atlanta are expected to receive the smallest salary increases, with average increases of 3.4 and 3.6 percent, respectively.

Industry will also play a factor in what kind of salary increases workers can expect in the coming year. The industries that Hewitt projects will experience above average salary increases in 2008 include accounting/consulting/legal with an average increase of 4.9 percent, energy with an increase of 4.5 percent and construction/engineering with a 4.4 percent salary increase. The industry that will have the lowest average salary increase is automotive with a 3.1 percent increase, followed by the forest and paper products/packaging industry and the medical devices industry, both of which are projected to increase by 3.4 percent.

While salary increases overall are projected to be conservative, Hewitt projects that merit-based bonuses will reach a record high of 12 percent or more in 2008. The adoption of merit-based bonus or variable pay programs, which reward workers based on their individual performances, has increased in popularity among companies in the past few years.  Today, 90 percent of companies offer some sort of variable pay program, according to the survey, whereas only 80 percent reported the same in 2006. 

Ken Abosch, leader of Hewitt's compensation consulting business, attributes the use of variable pay programs to businesses' desires to attract and retain qualified workers.  With more baby boomers getting ready to retire and fewer people entering the workforce, companies are having a harder time finding and keeping qualified talent.  In fact, 46 percent of the companies surveyed reported having problems attracting and retaining workers, an increase from 38 percent last year.  Additionally, because employees get individual incentives for their performances, variable pay programs tend to increase productivity among workers, which in turn benefit the company.  The most common incentive companies offer are special recognition awards (63 percent of companies offer this award to their employees).  They are followed in popularity by business incentives (59 percent), individual performance awards (44 percent), non-executive equity awards (44 percent) and retention bonuses (38 percent).