Outlook for Employers in 2011

PayScales Compensation Practices Survey

Outlook for Employers In 2011

Executive Summary
According to PayScales 2011 Compensation Practices Survey, companies are optimistic about their potential for success heading into 2011. About two-thirds of employers think their companys financial performance will improve in 2011 and most plan on increasing salaries at some point in the year. This certainty about salary increases may stem from the fact that, though many companies planned to keep salaries flat 2010, only 17 percent actually did. The majority of respondents (67%) plan to make performance-based pay increases in 2011. In another change from last year, instead of downsizing, companies plan to maintain their current workforce size in the coming year. Over 50 percent of companies say they expect their workforce to stay approximately the same in 2011, while about one-third plan to increase their workforce. Retaining and attracting good talent are the two chief compensation objectives for 2011 (as they were in 2010). Less than 10 percent of respondents feel employee retention will be of little or no concern in 2011. The majority of companies plan to reward and retain high-performing employees through a merit-based pay plan (50%), with learning and developmental opportunities (45%) as a close second. The 2011 Compensation Practices Survey was conducted in December of 2010. PayScales survey results were reviewed several ways, with comparisons done between small companies (<100 employees), medium-sized companies (100-1,500 employees) and large companies (1,500+ employees), as well as a closer analysis of three major industries: healthcare, manufacturing and not-for-profit.

The majority of employers plan to make performancebased pay increases in 2011. They expect to use mostly merit-based pay plans and learning and developmental opportunities to retain top performers.

Responses to the Economy

Organizations responded to the improving economy of 2010. Rather than shrinking in size like they did in 2009, 70 percent of companies kept their current workforce or added to it. Employees felt safer leaving their jobs. In 2009, the top reason for employees leaving an organization was poor performance (termination), with 46 percent of survey respondents naming that reason. In 2010, the top reason for employees leaving an organization was personal reasons (marriage, family, medical, etc.) with 53 percent of respondents giving that response, up from 40 percent in 2009. And, the number of people who left to seek advancement opportunities elsewhere grew from 29 percent in 2009 to 42 percent in 2010.

The number of people who left a company to seek advancement opportunities elsewhere grew from 29% in 2009 to 42% in 2010.

HR Decisions in 2010
In both 2009 and 2010, the majority of respondents chose the CEO as the one responsible for setting compensation: 50.5 percent in 2009 and 52.2 percent in 2010. The next most popular choice in 2010 was CFO with 39.7 percent (up from 23.6% in 2009), followed closely by head of HR at 39.4 percent (down from 43.7% in 2009). The least popular choice in both years was outside compensation consultant, with less than three percent in both years (2.3% in 2009 and 1.4% in 2010). Over one-third of respondents adjusted compensation for more than 50 percent of their workforce in 2010. The main reasons why companies adjusted compensation were

Outlook for Employers In 2011

Performance-Based Pay Increases (61%) and Employee Promotions (41%). On average, respondents spent three percent of their total payroll on base salary increases in 2010, with base salary adjustments ranging from a decrease of 10 percent to an increase of 15 percent. The most important compensation objective guiding the respondents 2010 decisions was Retaining Top Employees. On average, respondents spent three percent of their total payroll on base salary increases in 2010. Cost of living increases were rare, though, with over 75 percent of respondents saying that they do not grant them. And, almost 80 percent of respondents either have or are working on a formal compensation strategy. Of those who have pay ranges, 75 percent did not adjust their pay ranges in 2010.

Predictions for 2011

Employers are generally optimistic about their potential for business success in 2011, with small companies leading the pack. Seventy percent of respondents at small companies think their financial performance will improve in 2011, compared to 65 percent of medium-sized companies and 60 percent of large companies. Likely encouraged by this optimism, 90 percent of respondents from all company sizes plan to adjust the compensation of their workforce in 2011. And, the majority of respondents plan to make compensation adjustments via performance-based pay increases. Much like it was in 2010, retaining and attracting quality workers are the two chief compensation objectives for all company sizes in 2011. From an industry perspective, people from the healthcare and manufacturing industries are generally optimistic, with 59 percent of healthcare respondents and 74 percent of manufacturing respondents predicting that their companys financial performance will improve in 2011. The majority of respondents from the not-for-profit industry (52%) feel their companys financial performance will stay the same in 2011 as it was in 2010. In 2011, most industries are seeking quality workers. Retaining and attracting quality workers are the two chief compensation objectives for healthcare, manufacturing, notfor-profit, and all other industries in 2011. Only not-for-profit companies reported that managing increases in healthcare costs will be an important compensation objective in 2011.

Retaining and attracting quality workers are the two chief compensation objectives for all company sizes in 2011.

Outlook for Employers In 2011

Survey Highlights
y Over 70 percent of respondents say their organization size stayed the same or increased in 2010, compared to 2009 when over 40 percent of respondents said that their organization size decreased. y In 2010, the top reason for employees leaving an organization was personal reasons (marriage, family, medical, etc.) (53%), compared to 2009 when poor performance (termination) was the top reason (46%). y y The majority of respondents (39%) felt employee retention was a top concern in 2010 and also felt employee retention would continue to be a top concern in 2011 (49%). Over 50 percent of large companies decreased their organization size in 2009, while only 20 percent did so in 2010. The top reason for leaving a large company in 2010 was Seeking Advancement Opportunities Elsewhere, with 62 percent of respondents giving that answer. y Companies in manufacturing were most likely to increase their organizations size in 2010. In 2009, over 60 percent of manufacturing respondents said their organization size decreased, while in 2010 only 19 percent said this. y In both 2009 and 2010, the majority of respondents chose the CEO as the one responsible for setting compensation at their company: 50.5% in 2009 and 52.2% in 2010. y y y Salary ranges per job group are common, but varying the target market percentile per job group is not. The most important compensation objective guiding respondents 2010 decisions for all company sizes was Retaining Top Employees. Regardless of company size, organizations are likely to conduct market and compensation analyses throughout the year: 32% of small and medium companies and 44% of large companies. y The majority of companies plan to reward and retain high-performing employees through a merit-based pay plan (50%). The next most common approach is to provide learning and developmental opportunities (45%).

In both 2009 and 2010, the majority of respondents chose the CEO as the one responsible for setting compensation at their company: 50.5% in 2009 and 52.2% in 2010.

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Outlook for Employers In 2011

Compensation Practices and Outlook for 2011: Data Results

1. Overview
The following is a summary of survey results for the 2011 Compensation Practices Survey, as well as a comparison of those results to the 2010 Compensation Practices Survey.
The report focuses on the following key issues in analyzing the data: y y y What are companies hiring practices and how have they changed? What are companies compensation practices and how have they changed? What are companies plans for the future in terms of both hiring and compensation practices?

The report shows results at a macro level, as well as by company size and industry. y Company size breakdown: Small: < 100 employees Medium: 100 - 1,500 employees Large: >1,500 employees y Industry Breakdown: Due to limited counts for some industries, we will only focus on the three most popular industries amongst respondents and group all others under the title Other. The top three industries of respondents are healthcare, manufacturing, and not-for-profit. y Other Industries: Accounting, Advertising, Aerospace, Agriculture, Apparel, Architecture, Automobile, Aviation, Banking, Biotechnology, Chemicals, Childcare, Churches, Colleges and Universities, Commercial Aviation/Airlines, Commercial Printing, Communications, Construction, Consulting, Education, Electronics, Energy, Engineering, Entertainment, Environment, Finance, Food and Beverage, Food Manufacturing, Government, Government Contractor, Government State & Local, Hair and Beauty Salons, Hospitality, Human Resources Consulting, Insurance, Internet/ New Media, IT Services, Law Enforcement, Legal, Logistics, Machinery, Management, Marketing/Advertising, Media, Medical Office, Mining, Museums/Zoos/Parks, Nursing Home, Pharmaceuticals, Professional Employment Organization, Property Management, Public Safety, Publishing, Real Estate, Recreation, Retail, Semiconductors, Shipping, Social Services, Software Development, Staffing/Recruiting, Technology, Telecommunications, Television, Transportation, Travel, Utilities, Veterinary Care, and Wholesale

2. What are companies hiring practices and how have they changed?
Responses Across All Companies for 2010 and Comparisons to 2009
Changes in Organization Size y y y Organizations decreased in size in 2009 then stayed the same size or even increased in 2010. In 2009, over 40% of respondents said that their organization size decreased, while over 70% of respondents say their organization size stayed the same or increased in 2010. This change appears to be sign of some improvement in the economy, as companies are no longer terminating

Outlook for Employers In 2011

employees and some are even adding new talent. y The economy did not have a strong impact on companies hiring practices. Only 17% of respondents reduced their workforce in response to the economy. y y
Percentage of Respondents

Change in OrganizatiOn Size: 2009 vS. 2010

2009 60% 53% 50% 41% 40% 32% 30% 20% 10% 0% Increased Stayed the Same Decreased 27% 29% 19% 2010

Most respondents (33%) said they kept hiring to a minimum but still experienced growth. Almost 25% of respondents said they were minimally affected by the economy and continued to hire in 2010.

Reasons for People Leaving an Organization y In the improving economy of 2010, people felt more comfortable leaving a job for personal reasons or to seek advancement opportunities elsewhere, compared to last year. y In 2009, the top reason for an employee to leave an organization was poor performance (termination), with 46% of respondents naming that reason. y y y

This year, the top reason for employees leaving an organization was personal reasons (marriage, family, medical, etc.) with 53% of respondents giving that response, up from 40% in 2009. The number of people who left to seek advancement opportunities elsewhere increased from 29% in 2009 to 42% in 2010. Over 80% of respondents agree that pay is often not the primary reason that people first start looking for a new job.

Employee Retention y y y y Employee retention has become a bigger concern in 2010 than it was in 2009. In 2009, most respondents felt employee retention was only somewhat of a concern and over 50% of respondents believed employee retention would not be a major concern for their organization in 2010. However, in 2010, the majority of respondents (39%) felt employee retention was a top concern in 2010 and only 13% felt it was of little or no concern. Furthermore, the majority of respondents (49%) felt employee retention would continue to be a top concern in 2011, with less than 10% feeling it will be of little or no concern.

Responses by Company Size Change in OrganizatiOn Size in 2010: By COmpany Size

Changes in Organization Size y y Regardless of company size, organizations mostly maintained their number of employees in 2010.
Percentage of Respondents
Small Companies 70% 60% 60% 50% 40% 30% 20% 10% 0% Increased Stayed the Same Decreased 27% 20% 21% 16% 20% 33% 52% 51% Medium Companies Large Companies

Small companies (<100 employees) were the most likely to decrease their organization size over the year, while medium-sized companies (100 - 1,500 employees) were the most likely to increase their organization size.

When comparing changes in organization size across the two survey years (2009 and 2010), one can observe a distinct change. Regardless of company size, companies were less likely to decrease their organization size in 2010 than 2009.

The biggest change was for large companies. Over 50% of large companies decreased their organization

Outlook for Employers In 2011

size in 2009, while only 20% did so in 2010.

Change in OrganizatiOn Size By COmpany Size: 2009 vS. 2010

Change in Organization Size (2009) Increased Stayed the Same Small 26% 36% Medium 29% 30% Large 24% 22% Change in Organization Size (2010) Increased Stayed the Same Small 27% 52% Medium 33% 51% Large 20% 60%

Reasons for People Leaving an Organization y Small companies had the strongest response to poor performance in 2010. 65% of small companies listed Poor Performance as a reason for employees leaving the organization, compared to only 53% of medium-sized companies and 40% of large. y y y y The top reason for leaving a small or medium-sized company in 2010 was Personal Reasons, with at least 60% of respondents choosing this answer for each company size. The top reason for leaving a large company in 2010 was Seeking Advancement Opportunities Elsewhere, with 62% of respondents giving that answer. This result for large company employees is up from last year. In 2009, only 49% of large company respondents chose this reason. Personal Reasons (60%) was a close second response. However, poor performers took a bigger hit this year as 40% of respondents at large companies chose Poor Performance as a reason for leaving the organization compared to only 27% in 2009. Employee Retention y Employee retention was a top concern for all company sizes in 2010 (~40%). In 2009, employee retention was only somewhat of a concern for small and medium-sized companies (~30%) and one of many concerns for large companies (37%). y y y y When asked about future concerns over employee retention, all company sizes reported that it would still be a top concern in 2011. Employee retention in 2011 is a top concern for ~50% of respondents regardless of company size. In one year, small companies went from feeling employee retention was a minor future concern to feeling like it is a top concern for the future. In 2009, 58% of small companies said employee retention would not be a major concern in 2010. In 2010, only 11% of small companies said employee retention would not be a major concern in 2011.

Responses by Industry
Changes in Organization Size y y y y y The majority of manufacturing and not-for-profit industry respondents stated that their organization size decreased in 2009. This response changed drastically in 2010 as the majority of respondents from these industries stated that their organization size remained the same throughout the year. Both in 2009 and 2010, the majority of healthcare industry respondents stated their organization size stayed the same. Companies in manufacturing were most likely to increase their organizations size over the year. This trend could be another sign of an economic recovery as the manufacturing sector was one of the hardest hit in the recent recession. In 2009, over 60% of manufacturing respondents said their organization size decreased, while in 2010 only 19% said this.

Outlook for Employers In 2011

Change in OrganizatiOn Size in 2010: By induStry

Manufacturing 70% Healthcare 62% 58% 52% 45% 35% 26% 29% 28% 19% 12% 13% 20% Not-for-Profit Other

Percentage of Respondents

60% 50% 40% 30% 20% 10% 0% Increased

Stayed the Same

Decreased

Reasons People Leave an Organization y Personal Reasons was the most popular reason for employees to leave a company, regardless of industry in 2010. Healthcare: 62% Manufacturing: 50% Not-for-Profit: 66% Other: 50% y y y The top reason for an employee to leave a company in the manufacturing industry was Termination Due to Poor Performance (55%). This number was up from 48% of respondents in 2009. Poor Performance was a key reason for leaving healthcare (50%), not-for-profit (46%), and other (44%) industries, as well. Seeking advancement opportunities elsewhere was another common reason to leave regardless of industry. Healthcare: 29% Manufacturing: 38% Not-for-Profit: 43% Other: 44% Employee Retention y y y Employee Retention was a top concern for companies in the healthcare, not-for-profit, and other industries in 2010 (~40%). The majority of respondents from manufacturing companies (41%) listed it as an average concern in 2010. When asked about future concerns over employee retention, all industries felt it was a top concern in 2011 (~50%).

3. What are companies compensation practices and how have they changed?
Responses Across all Companies for 2010 and Comparisons to 2009
Setting Compensation y In both 2009 and 2010, the majority of respondents chose the CEO as the one responsible for setting compensation: 50.5% in 2009 and 52.2% in 2010.

Outlook for Employers In 2011

The next most popular choice in 2010 was CFO with 39.7% (up from 23.6% in 2009), followed closely by head of HR at 39.4% (down from 43.7% in 2009).

WhO iS reSpOnSiBle fOr Setting COmpenSatiOn BudgetS?

CEO CFO Head of HR Other Compensation Committee Department Head / General Manager Inside Compensation Expert Hiring Manager Outside Compensation Consultant 0% 3% 1% 10% 20% 30% 40% 50% 60% 8% 20% 17% 15% 40% 39% 52%

The least popular choice in both years was outside compensation consultant, with less than 3% of responses in both years (2.3% in 2009 and 1.4% in 2010)

Compensation Structures y Although the CEO is primarily responsible for setting compensation budgets, the head of HR is primarily responsible for setting compensation structures. y Over 50% of respondents reported that the head of HR set compensation structures at their organization, compared to only 33% of CEOs. y Common answers given in the Other category include board of directors, COO, board of trustees, accounting managers, and joint decisions among various positions. Compensation Adjustments y Over 1/3 of respondents adjusted compensation for more than 50% of their workforce in 2010. y Overall, only 17% of respondents didnt adjust their compensation for any of their workforce in 2010. y The main reason why companies adjusted

WhO iS reSpOnSiBle fOr Setting COmpenSatiOn StruCtureS?

Head of HR CEO CFO Other Inside Compensation Expert Compensation Committee Department Head / General Manager Outside Compensation Consultant Hiring Manager 3% 3% 50% 60% 16% 12% 12% 12% 20% 33% 54%

0% 10% 20% 30% 40% compensation was Performance-Based Pay Increases (61%) and second was Employee Promotions (41%).

Base Salary Increases y y On average, respondents spent 3% of their total payroll on base salary increases in 2010. Base salary adjustments ranged from a decrease of 10% to an increase of 15%.

Pay Range Adjustments y y Of those who have pay ranges, 75% of respondents did not adjust their pay ranges in 2010. Of the 25% who adjusted their pay ranges, the average adjustment was 4%.

Compensation Objectives y y y y The most important compensation objective guiding the respondents 2010 decisions was Retaining Top Employees. Over 60% of respondents chose this as their most important compensation objective. The majority of respondents felt that Attracting New Talent to the Organization was important, but not paramount. Most respondents felt that Introducing or Upgrading a Pay-for-Performance Plan and Managing Increases in Healthcare Costs held no importance whatsoever. Salary Ranges vs. Market Percentiles y y Salary ranges per job group are common, but varying the target market percentile per job group is not. The majority of companies (68% in 2009 and 75% in 2010) use salary ranges to structure their compensation programs,

Outlook for Employers In 2011

while only 7% use broad banding (very wide salary ranges covering a progression of similar jobs). The remaining respondents dont use either. y y y y Of those companies that use salary ranges, the majority use ranges for groups of jobs (grades) rather than job-specific ranges (57% and 43%, respectively). The most common way for those who use grades to assign jobs to grades is to use market data (48%). Additionally, aligning different jobs or categories of employees with different market percentiles, e.g. 50th for professional and 75th for executives and key jobs, is not common. At least 70% of respondents (in both 2009 and 2010) do not target different market percentiles by job.

Adjustment of Salary Structures y y Of those companies that have a salary structure, 48% adjust their salary structures as they see necessary, while 33% do annual adjustments. Over 1/3 of companies did their last salary structure adjustment within the past 12 months.

Internal Pay Equity y y y When evaluating internal pay equity, the majority of companies evaluate compensation for individuals in the same job (60%). The next most common things considered for internal pay equity are Compensation Across Jobs at the Same Grade or Level and Compensation by Performance Level (both 36%). The least common thing considered is Compensation by Employee Potential (under 10%).

Cost of Living y y y Cost of living increases are rare. Over 75% of respondents say that they do not grant them. This response may tie into the fact that inflation has continued to be low this year. For example, the Bureau of Labor Statistics finds inflation between November 2009 and November 2010 to be 1.1%.

Bonuses: Who Receives Them and What Type? y y y y y y On average, respondents spent 6% of their 2010 payroll budget on variable pay incentives. The range was from 0% to 100%. The two main groups to receive variable pay incentives were executives (42%) and directors and managers (42%). About 40% of respondents do not pay variable pay incentives. In 2009, the most common bonus awarded was a spot bonus (65%). In 2010 this changed, as spot bonuses fell to the second most common type of bonus (40%) and the most common bonus awarded was an individual incentive bonus (53%). Responses are evenly split between the use of discretionary bonuses and non-discretionary bonuses. Of those who use bonus programs, about 1/3 use discretionary programs, 1/3 use non-discretionary programs, and 1/3 use both. Formal Compensation Strategy and Market Analysis y y Almost 80% of respondents either have or are working on a formal compensation strategy. 27% of respondents conduct market and compensation analyses continuously, throughout the year. However, when looking at quarters, the most common quarter to conduct market and compensation analysis is Q3.

Responses by Company Size

Setting Compensation Budgets y y y Small Companies: At small companies, the CEO (56%) was chosen by the majority of respondents as the one who sets compensation budgets. The next most popular answers were CFO (29%) and head of HR (27%). Medium Companies: Similar to small companies, most medium-sized companies have the CEO (52%) set the compensation budget. However, CFOs and heads of HR are not far behind (~48%) Large Companies: Unlike small and medium-sized companies, the head of HR (47%) at a large company is usually

Outlook for Employers In 2011

responsible for setting compensation budgets, while CEOs and CFOs are second (42%). Setting Compensation Structures y Who is responsible for setting compensation structures at each size of organization? Small Companies: CEO (43%) Medium Companies: Head of HR (68%) Large Companies: Head of HR (52%) Compensation Adjustments y Regardless of company size, the majority of respondents adjusted compensation for more than 50% of their workforce in 2011. However, large companies were the most likely to choose this response. Small Companies: 32% adjusted compensation for more than 50% of their workforce. A close second was adjusting compensation for 1-10% of the workforce (28% of respondents). Medium Companies: 37% adjusted compensation for more than 50% of their workforce. Large Companies: 45% adjusted compensation for more than 50% of their workforce. y The main reason why companies adjusted compensation was Performance-Based Pay Increases, with the following percentage of respondents giving that answer. Small Companies: 48% Medium Companies: 53% Large Companies: 52% Compensation Objectives y The most important compensation objective guiding the respondents 2010 decisions for all company sizes was Retaining Top Employees. y Over 50% of respondents from each company size chose employee retention as the most important compensation objective. Small Companies: 64% Medium Companies: 58% Large Companies: 57% y y Similar to last year, regardless of company size, salary ranges per job are common. The likelihood of grouping salary ranges by grade increases with company size.
Small Medium Large

StruCture Of COmpenSatiOn prOgram By COmpany Size

Company Size Salary Ranges 72% 76% 78% Broad Bands 4% 7% 14% Neither 24% 17% 8%

Assigning Jobs to Grades y y y For those who use grades, the most common way to assign jobs to grades is the use of market data. Regardless of company size, ~50% of respondents say they use market data. The next most common method is the use of a qualitative job evaluation method, e.g. a classification system (~20%). Market Percentiles y Varying the target market percentile per job is not common, although it is most popular with large companies. The following lists the percentage of respondents who do not align jobs with different market percentiles. Small Companies: 72% Medium Companies: 71% Large Companies: 63%

grOuping Of Salary rangeS By COmpany Size

Company Size Small Medium Large By Grade 41% 64% 76% Each Job Has Its Own Salary Structure 59% 36% 24%

Outlook for Employers In 2011

Cost of Living Increases y y Cost of living increases are rare. At least 70% of respondents from all company sizes say they do not grant them. Similar to last year, cost of living increases are rarest in large companies, as 80% of respondents say they do not grant them. Bonuses: Who Receives Them and What Type? y Small companies are less likely to pay variable pay incentives than medium-sized and large companies. The following lists the percentage of respondents who do not pay variable pay incentives. Small Companies: 42% Medium Companies: 29% Large Companies: 17% y y y y y Of those companies that pay incentive bonuses, executives and managers are the two groups of employees most likely to receive them, regardless of company size. Large companies are most likely to grant hiring and retention bonuses. In 2009, the most common bonuses awarded by small and medium-sized companies were spot bonuses (67% and 68%, respectively). This pattern changed dramatically in 2010, as spot bonuses fell behind individual incentive bonuses for both company sizes. Target incentive bonuses were the most common bonuses awarded by large companies regardless of the year (67% in 2009 and 55% in 2010).

type Of BOnuS uSed in 2010: By COmpany Size

Small Companies 70% Medium Companies Large Companies

Percentage of Respondents

60% 50% 40% 30% 22% 20% 10% 0% Retention Bonus Hiring Bonus 7% 13% 11% 30% 23%

60% 59%

55% 48% 42% 40% 35% 24% 19%

20%

20% 13%

Individual Incentive Bonus

Team Incentive Bonus

Spot Bonus

Other

Overall Compensation Practices y The likelihood of conducting a compensation study increases with company size. The following shows the percentage of respondents who conducted or are currently conducting a market compensation study. Small Companies: 39% Medium Companies: 53% Large Companies: 64% y The likelihood of having or working on a formal compensation strategy also increases with company size. Small Companies: 70% Medium Companies: 81% Large Companies: 91% y Regardless of company size, organizations are likely to conduct market and compensation analyses throughout the year: 32% of small and medium-sized companies and 44% of large companies.

Outlook for Employers In 2011

Adjustment of Salary Structures y For those who have a salary structure, most adjust them as they see necessary. Small Companies: 52% Medium Companies: 46% Large Companies: 44% y The second most common time to adjust salary structures is annually. The probability of doing annual adjustments increases with company size. Small Companies: 31% Medium Companies: 32% Large Companies: 38% y About a 1/3 of respondents from all company sizes have adjusted their salary structure in the last 12 months.

Responses by Industry
Setting Compensation Budgets y Regardless of industry, the CEO is the one most likely to set the compensation budget. Healthcare: 48% Manufacturing: 50% Not-for-Profit: 62% Other: 52% Setting Compensation Structures y Regardless of industry, the head of HR is the one most likely to set the compensation structure. Healthcare: 50% Manufacturing: 54% Not-for-Profit: 55% Other: 55% Compensation Adjustments y y y The majority of respondents in the healthcare industry (37%) adjusted compensation for 1-10% of their workforce in 2010. The majority of respondents in the manufacturing industry (45%) and the not-for-profit industry (35%) adjusted compensation for more than 50% of their workforce in 2010. The main reason companies adjusted their compensation was performance-based pay increases, with ~60% of respondents in healthcare and manufacturing and 50% in not-for-profit doing so. Compensation Objectives y y The most important compensation objective guiding respondents 2010 decisions for all industries was Retaining Top Employees. Over 50% of respondents from each industry chose this as their most important compensation objective. Healthcare: 59% Manufacturing: 59% Not-for-Profit: 57% Other: 61% Salary Ranges y y Regardless of industry, salary ranges per job are common. In a flip-flop from 2009, employers in the

StruCture Of COmpenSatiOn prOgram By induStry

Industry Healthcare Manufacturing Not-for-Profit Other Salary Range 82% 74% 86% 73% Broad Bands 3% 7% 3% 7% Neither 15% 19% 11% 20%

Outlook for Employers In 2011

manufacturing industry in 2010 were the most likely to group salary ranges, while those in the not-for-profit industry were the least likely. y y y y For those who use grades, the most common way to assign jobs to grades is to use market data. Over 50% of healthcare respondents use market data, while close to 50% of respondents in the other industries use market data. The next most common method used by the healthcare and manufacturing industries is the use of a classification system (both 24%). The next most common method used by the not-for-profit industry is a quantitative job evaluation method, e.g. Point Factor (23%). Target Market Percentile y Varying the target market percentile per job is not common. The following lists the percentage of respondents who do not align jobs with different market percentiles. Healthcare: 74% Manufacturing: 65% Not-for-Profit: 79% Other: 70% Cost of Living Increases y y y Cost of living increases are rare. At least 65% of respondents from all industry categories say that they do not grant them. Cost of living increases are rarest in the healthcare industry, as 82% of respondents say they do not grant them. They are the most common in the not-for-profit industry, as only 65% do not grant them.
Healthcare Manufacturing Not-for-Profit Other 59% 64% 54% 56%

grOuping Of Salary rangeS By induStry

Company Size By Grade Each Job Has Its Own Salary Structure 41% 36% 46% 44%

Bonuses: Who Receives Them and What Type? y Not-for-profit companies are less likely to pay variable pay incentives than companies in other industries. The following lists the percentage of respondents per industry who do not pay variable pay incentives. Healthcare: 41% Manufacturing: 38% Not-for-Profit: 67% (up from 54% last year) Other: 35% y y y y Of those who pay incentive bonuses, executives and managers are the two groups of employees most likely to receive them, regardless of industry. Healthcare companies are most likely to grant individual incentive bonuses and hiring bonuses, while manufacturing companies are most likely to grant spot bonuses. In 2009, the most common type of bonus used by all industries was a spot bonus. This greatly changed in 2010, as the most common type of bonus is now an individual incentive bonus. The most dramatic change in the use of bonuses was observed in not-for-profit companies. In 2009, 81% of not-forprofit companies used spot bonuses compared to only 34% this year.

Outlook for Employers In 2011

type Of BOnuS uSed in 2010: By induStry

Healthcare 60% Manufacturing Not-for-profit

Percentage of Respondents

50% 40% 30% 20% 12% 12% 10% 0% Retention Bonus Hiring Bonus 9% 26% 17% 11%

49% 44% 36% 35% 41% 34% 23% 31% 21% 12%

19% 18%

Individual Incentive Bonus

Team Incentive Bonus

Spot Bonus

Other

Overall Compensation Practices y y y Regardless of industry, ~50% of respondents either conducted or are currently conducting a market compensation study. Regardless of industry, ~80% of respondents either have or are working on a formal compensation strategy. Those in the healthcare and manufacturing industries typically conduct market and compensation analyses continuously throughout the year, while those in the not-for-profit industry typical conduct these analyses every other year. Adjustment of Salary Structures y y For those who have a salary structure, the majority adjust them as they see necessary: ~50% regardless of industry. At least 30% of respondents adjusted their salary structure in the last 12 months.

4. What are companies plans for the future in terms of both hiring and compensation practices?
Responses Across All Companies for 2010 and Comparisons to 2009
Positive Outlook y Companies are generally optimistic. About 2/3 of respondents think their companys financial performance will improve in 2011. Salary Increases y y Unlike last year, companies are planning on increasing salaries. Last year the most common effect of the economy on workforce strategy and practices was that companies planned on keeping salaries flat in 2010 (39%). However, at the end of the year, only 17% of companies ended up keeping salaries flat in 2010. y y In 2011, over 90% of respondents plan to give compensation adjustments to their workforce. 50% of those respondents plan to give compensation adjustments to more than 50% of their workforce. Similar to their 2010 practices, the majority of respondents plan to make compensation adjustments due to performance-based pay increases (67%). Similar Workforce Size y Unlike last year, when companies were reducing their workforce size, companies plan to maintain their current workforce in 2011.

Outlook for Employers In 2011

Over 50% of companies say they expect their workforce to stay approximately the same in 2011, while about 1/3 plan to increase their workforce.

Employee Retention a Priority y y y y Companies still want quality workers. Retaining and attracting quality workers are the two chief compensation objectives for 2011 (as they were in 2010). Employee retention will continue to be a top concern in 2011. Less than 10% of respondents feel employee retention will be of little to no concern in 2011. The majority of companies plan to reward and retain high-performing employees through a merit-based pay plan (50%). The next most common approach is to provide learning and developmental opportunities (45%) as rewards.

Responses by Company Size

Small Company Optimism y People are the most optimistic about their future financial performance at smaller companies. 70% of respondents at small companies think their financial performance will improve in 2011, compared to 65% of medium companies and 60% of large companies. Salary Increases y y Companies of all sizes plan to increase salaries in the coming year. Last year, the majority of respondents from all company sizes felt they would keep salaries flat in adjusted compensation for their workforce in 2010. y y Companies plan to continue this upward trend in 2011. ~90% of respondents from all company sizes plan to adjust the compensation of their workforce in 2011. Again, similar to their 2010 practices, the majority of respondents plan to make compensation adjustments via performance-based pay increases (greater than 60%) Similar Workforce Size y y Regardless of size, companies plan on maintaining the same size workforce in 2011 as they had in 2010. Over 50% of respondents expect their workforce to stay approximately the same in 2011. Large companies are the ones least likely to increase their size and most likely to decrease their size. Employee Retention a Priority y Companies want quality workers. Retaining and attracting quality workers are the two chief compensation objectives for all company sizes in 2011.

hOW dO yOu expeCt yOur WOrkfOrCe Size tO Change in 2011?

Change to Workforce in 2011 Increase Stay the Same Decrease Small Companies 40% 56% 4% Medium Companies 37% 57% 6% Large Companies 29% 61% 10%

2010. This assumption ended up not holding true as the majority of respondents (~80%) from all company sizes

Responses by Industry hOW dO yOu expeCt yOur WOrkfOrCe Size tO Change in 2011?
Positive Outlook y People from the healthcare and manufacturing industries are generally optimistic. y 59% of healthcare respondents and 74% of manufacturing respondents
Change to Workforce in 2011 Increase Stay the Same Decrease Healthcare 29% 66% 5% Manufacturing 45% 50% 5% Not-for-Profit 24% 71% 5% Other 39% 56% 5%

Outlook for Employers In 2011

think their companys financial performance will improve in 2011. y The majority of respondents from the not-for-profit industry (52%) feel their companys financial performance will stay the same in 2011 as it was in 2010. Salary Increases y y y Salaries are expected to rise in 2011. In 2009, the majority companies expected to keep their salaries flat in 2010, regardless of industry. However, very few did, as most companies adjusted compensation for most of their workers. The majority of respondents from all industries expect to increase salaries for the majority of their workforce again in 2011. The following percentage of respondents plan on giving compensation adjustments to more than 50% of their workforce in 2011. Healthcare: 48% Manufacturing: 64% Not-for-Profit: 56% Other: 45% y Healthcare companies are the most likely to keep salaries flat (43%) rather than increase salaries (16%).

Similar Workforce Size y y Companies do not intend to increase hiring. Regardless of industry, companies intend to have their workforce stay approximately the same size in 2011. Those in manufacturing are most likely to increase their workforce. Employee Retention a Priority y y Companies want quality workers. Retaining and attracting quality workers are the two chief compensation objectives for the healthcare, manufacturing, not-for-profit, and other industries in 2011. Unlike all other industries, managing increases in healthcare costs is an important compensation objective for 2011 for not-for-profits companies.

5. Major Changes from Last Year

Greater Optimism y y y Things are looking up this year, both in terms of hiring and in terms of pay increases. Last year the majority of companies were decreasing their workforces. This year, most plan on maintaining or even increasing their workforces. Last year pay was going nowhere. This year, most respondents adjusted pay for the majority of their workforce and plan to do so in 2011, as well. Focus on Employee Retention y y y This year, employers are more concerned with employee retention than previous years. Now that the economy appears to be improving, workers may no longer feel the need to stay in a job that doesnt satisfy them. For this reason, among others, employers feel that employee retention was one of their top concerns for 2010, and will continue to be so in 2011. Salary Ranges by Grade y y This year, most respondents group their salary ranges by grade rather than having them be job specific. Last year, only 34% of respondents grouped their salary ranges by grade, while this year 43% of respondents grouped their salary ranges by grade.

Outlook for Employers In 2011

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