When all formulae, especially the formula of a really large salary package, for attracting and retaining talent flop, only one — performance-related awards — tops. This is why performance-related awards, which must be re-earned each year, are projected to hit a record high in 2008 in the U.S., and the number of companies using this strategy will be additional 12 percent next year, according to a recent study by Hewitt Associates. Over 90 percent companies surveyed currently offer at least one type of broad-based variable pay plan.

Increasing cost pressures, coupled with the challenges of attracting and retaining top talent, have contributed to a fundamental shift in the way employees have been — and will continue to be — rewarded and motivated, according to Ken Abosch, Leader, Hewitt’s Compensation Consulting business.

Though performance-related awards enable employees hired by American companies to earn more than three times the amount they can otherwise earn, only a modest base pay increase is expected in 2008, finds the study.

At present actual company spending on variable pay as a percentage of payroll is 11.8 percent, up from just 8.8 percent in 2003; spending on variable pay in 2008 is projected to remain strong at 11.6 percent. But after comparing the differences between projected and actual variable pay increases in 2007, actual pay increases are expected to reach more than 12 percent next year. (See Table for the most common variable-pay awards.)

Not surprisingly, basic salary increment for employees will inch up to just 3.8 percent in 2008, compared to 3.7 percent in 2007 and 3.6 percent in the last year, shows the survey of 1,007 large American organizations. In fact, executive employees are projected to receive an increase of 3.9 percent, compared to 3.7 percent for non-union hourly employees, and just 3.3 percent for union employees.

Salaries Increases
By Cities in 2008 (%)