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New Aon Hewitt Survey Shows 2014 Variable Pay Spending Spikes to Record-High Level

2015 Salary Increases are Projected to Reach Highest Level Since 2008

Aug 27, 2014

LINCOLNSHIRE, Ill.,  August 27, 2014 – Research from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), reveals variable pay spending among U.S. employers reached a record-high level of 12.7 percent of payroll in 2014 – the highest in more than 35 years. Conversely, salary increases for U.S. workers were 2.9 percent, reflecting companies’ continued focus on holding the line on fixed costs.

Aon Hewitt’s 2014 U.S. Salary Increase Survey of 1,064 companies found that 91 percent of organizations currently offer a variable pay program and expect to spend 12.7 percent of payroll on variable pay for salaried exempt employees in 2015. By comparison, in 2005, just 78 percent of companies offered a variable pay program, which accounted for 11.4 percent of payroll.  

“Variable pay budgets and spending have nearly doubled in the last 20 years, subsequently emerging as the pay-for-performance vehicle of choice now and for the foreseeable future,” said Ken Abosch, compensation, strategy and market development leader at Aon Hewitt. “In a more robust job market, competition for talent exists in every sector. As a result, we are seeing industries that have traditionally shied away from providing bonuses, such as agriculture, higher-education and the federal government, realizing they must establish variable pay programs to compete for and retain the best talent.”

Aon Hewitt Salary Increase Survey: Spending on Variable Pay as a Percent of Payroll

Organization

 

2008

2009

2010

2011

2012

2013

2014

2015 (projected)

Salaried Exempt

10.8%

12.0%

11.3%

11.6%

12.0%

12.0%

12.7%

12.7%

Salaried Nonexempt

5.7%

6.5%

6.0%

6.3%

6.2%

6.0%

 

6.7%

6.8%

Nonunion Hourly

5.0%

5.8%

5.3%

5.2%

6.0%

5.4%

6.1%

5.9%

Union

5.9%

6.6%

4.6%

5.0%

4.9%

4.8%

5.6%

5.0%

 

“Historically unions have been resistant to performance-based reward approaches because they require management discretion,” said Abosch. “To see that variable pay spending on union employees is tracking with other hourly employees reflects a dramatic change in thinking in union leadership.”

Salary Increases

Aon Hewitt’s survey found that salaried exempt workers are projected to see base pay rise 3.0 percent in 2015. This is a modest increase over last year, but marks the highest level since 2008, when salary increases reached 3.7 percent for salaried exempt employees.

“Setting the right salaries to attract and retain top talent is among the most complex business decisions organizations face today,” said Abosch. “The majority of organizations have been conservative when evaluating salary increases. They feel like they need to be careful about adding to their fixed costs. This is one of the main reasons variable pay programs are so attractive – a one-time expense aspect of payouts that doesn’t carry over to the following year – as well as the fact that organizations only provide rewards if they have the performance to support it.”

Aon Hewitt Salary Increase Survey: Historical U.S. Salary Increases   

 

2008

2009

2010

2011

2012

2013

2014

2015 (projected)

Executive

3.9%

1.4%

2.4%

2.8%

2.9%

2.9%

3.0%

3.1%

Salaried Exempt

3.7%

1.8%

2.4%

2.7%

2.8%

2.9%

2.9%

3.0%

Salaried Nonexempt

3.7%

1.9%

2.4%

2.8%

2.7%

2.8%

2.9%

3.0%

Nonunion Hourly

3.6%

2.0%

2.4%

2.7%

2.7%

2.7%

2.8%

3.0%

Union

3.4%

2.2%

2.5%

2.6%

2.5%

2.6%

2.5%

2.8%

 

Salary Increases by City

According to Aon Hewitt’s survey, workers in some U.S. cities can expect to see salary increases higher than the national average in 2015. These cities include, Denver (3.5 percent), Houston (3.4 percent) and Los Angeles (3.2 percent). Workers in New York, Minneapolis/St. Paul and Milwaukee should anticipate pay increases of 2.8 percent, lower than the national average.

Salary Increases by Industry

The industries that can expect to see the highest salary increases in 2015 include energy/oil/gas (3.8 percent); real estate (3.4 percent); telecommunications (3.2 percent) and pharmaceutical (3.2 percent). The lowest increases are projected to be in education (2.7 percent); government (2.6 percent); and forest and paper products/packaging (2.6 percent).

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About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness.  Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide.  For more information on Aon Hewitt, please visit www.aonhewitt.com.

About Aon

Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United

Media Contacts:

MacKenzie Lucas, 847-442-2995, mackenzie.lucas@aonhewitt.com

Amy Kaleniecki, 847-771-4225, amy.kaleniecki@aonhewitt.com



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