Study: Salaries Set to Increase Little, Merit Pay Still High

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U.S. workers can expect skimpy raises in their base salaries next year, but top performers may still fatten their paychecks with merit compensation.

A study released Tuesday by Hewitt Associates, a human resources consulting firm, found base pay will rise by 3.8 percent in 2009, marking the seventh consecutive year of flat growth.

One-time performance-based pay, however, is expected to grow by 10.6 percent. That's down slightly from 10.8 percent this year and 11.8 percent in 2007.

Performance-based rewards are popular since they don't commit companies to ongoing costs, said Ken Abosch, leader of Hewitt's compensation consulting business. The survey measured one-time performance-based awards and did not include raises based on performance.

"Most of the compensation growth today comes from (one-time merit-based) pay - it accounts for almost three-quarters of the increase," he said.

That's opposed to a decade ago, when base pay accounted for the majority of yearly compensation growth, he said.

Many workers still don't realize they're eligible for such one-time bumps, however, he said. Sometimes the opportunities are only available to upper management or new hires.

The most common one-time performance-based rewards were signing bonuses (used by 65 percent of companies), followed by incentives (63 percent), special recognition awards (56 percent), individual performance awards (41 percent) and retention bonuses (39 percent), according to the study.

The vast majority of companies, 90 percent, use performance-based rewards as a way to attract talent, the study found. The findings were based on surveys with 1,073 large organizations.

The industries expected to see above-average salary increases next year are accounting and consulting (4.6 percent), energy (4.5 percent) and construction and engineering (4.5 percent).

Almost no companies are cutting salaries, although some may be reducing their head count, Abosch said.