Aon Hewitt: Variable pay reaches record level in US

Variable pay schemes have reached an record-high level in the U.S., concludes a new research from Aon Hewitt, reconfirming the shift in the talent management space from fixed to variable pay.

Every year Aon Hewitt – the HR consulting practice of Aon – researches the key trends in the area of salaries and benefits. This year 1,064 companies participated in the ‘2014 U.S. Salary Increase Survey’.

The survey found that over the past years the popularity of variable pay programs has increased strongly. In 2005 78% of companies offered a variable pay program, while the current percentage stands at 91%. In addition, the budgets for variable pay programs have increased as well: in 2005 they accounted for 11.4% of total payroll, currently this is 12.7% – according to Aon the highest level in more than 35 years.

“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,” says Aon Hewitt consultant Ken Abosch. In his view, employers are choosing to adopt variable pay programs as it among others enables them to compete for and retain the best talent.

Salary

Aon Hewitt’s survey also found that salaried exempt workers are projected to see their base pay rise with 3% in 2015, a modest increase over last year (2.9%), but at the same time nowhere near 2008, when salary increases reached 3.7%. The highest salary increases are expected in the cities Denver (3.5%), Houston (3.4%) and Los Angeles (3.2%). From an industry perspective, energy (3.8%) real estate (3.4%), telecommunications (3.2%) and pharmaceutical (3.2%) will be the most lucrative in terms of pay rise.