Results from an October 2008 Culpepper Pay Practices & Policies Survey highlight strategies companies plan to use over the next year to control the costs of base salaries, short-term incentives, and long-term incentives. Also included in the report are hiring strategies companies will use to manage compensation costs in 2009.
Base Salaries
Seventy-two percent of respondents indicated that they have a plan for controlling fixed base salary costs in 2009. The most common strategy companies plan to use to control base pay is to give smaller base salary increases to poor performers, non-key employees, and employees in non-critical jobs.
Other strategies companies plan to use to manage salaries include paying below-market salaries, freezing salaries, and delaying salary increases to a later date. Only 3 percent of companies plan to cut salaries in 2009.
Fifteen percent of companies remain undecided on how they will control base salary costs in 2009.
Due to the economic downturn and budget cuts, many participants indicated that they are reining in costs by giving greater scrutiny to salary increases, promotions, and restricting out-of-cycle increases. Additionally, numerous participants indicated that they are holding down base salary increase budgets by shifting more employees to variable, performance-driven awards.
Short-Term Incentives
Fifty-one percent of respondents indicated that they have a plan for controlling variable, short-term cash incentive costs in 2009. The most common strategies companies plan to use to manage short-term incentives include giving smaller incentives to poor performers, raising performance targets, reducing the size of short-term incentives, and reducing the number of employees eligible for short-term incentives. Only 3 percent of companies plan to eliminate short-term cash incentives in 2009.
Fifteen percent of companies were undecided on how they will control short-term incentive costs in 2009. Short-term incentives include bonuses, commissions, cash profit sharing, and other variable cash payments earned within a one-year period.
Sales Compensation
The most common strategy companies plan to use to control sales compensation in 2009 is setting larger quotas and sales targets.
Additional methods reported by participants to manage sales compensation costs include windfall policies on commissions earned through little effort, restricting certain accounts from commissions, lowering commissions, implementing flat maximums on earnings from a single contract or sale, changing the pay mix to have a lower base with a higher variable component, increasing sales thresholds before commissions are paid, increasing sales hurdles before higher commission rates are paid, and lowering commission multipliers.
Sixteen percent of companies were undecided on how they will control sales compensation costs in 2009.
Long-Term Incentives
The most common strategies companies plan to use to control long-term incentives include reducing the number of employees eligible for long-term incentives and giving smaller awards to poor performers and non-key employees. Other strategies companies plan to use to control long-term incentives include raising performance targets and reducing the size of long-term incentive awards. Only two percent of companies plan to eliminate long-term incentives in 2009.
Sixteen percent of companies were undecided on how they will control long-term incentive costs in 2009.
Control Compensation Costs Wisely
In this time of economic uncertainty, it is critical to attract top talent and retain star performers who will drive your organization’s success in difficult market conditions. You cannot afford to guess about compensation rates of key employees or make "across the board" salary increases or freezes. A modest investment in current market data will help you allocate your compensation dollars wisely and in the right places.
Source: October 2008 Culpepper Pay Practices & Policies Survey
