Compensation Budgets Favor Variable over Fixed Pay

10/14/2015
Stephen Miller

The majority of annual pay increases is being allocated to variable pay such as incentives, bonuses and cash awards, new data from consultancy Aon Hewitt revealed.

According to the firm’s August 2015 U.S. Salary Increase Survey report, which collected data in June and July from 1,214 mostly large organizations, in 2015 salaried exempt workers will see base pay rise by 2.9 percent while variable pay will represent 12.9 percent of payroll, on average. For 2016, these workers are projected to see a base pay increase of 3 percent while variable pay is expected to represent 12.7 percent of payroll, still higher than in most recent years.

“We are seeing more than 90 percent of companies shifting more of their spending to variable pay because it enables them to recognize and reward performance without growing their fixed cost,” Ken Abosch, broad-based compensation practice leader at Aon Hewitt, told SHRM Online. “Pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent.”

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