The good news for workers, according to data released Wednesday by Aon Hewitt, is that company spending on compensation has reached a new high.
In 2015, the human resources consultancy reported, workers will see a flat 2.9 percent increase in base pay on average, but they’ll also see a 12.9 percent increase in “variable pay” — things like bonuses, incentives and other cash rewards — the highest increase in 39 years.
That’s nice work — if you can get it. The bad news for many workers is that fewer companies are sharing the wealth with their salaried “non-exempt” employees — people in clerical and technical jobs such as administrative assistants, machine operators or electricians who are eligible for overtime and make up a huge segment of many companies’ workforces.
A prior survey on variable pay by Aon Hewitt released last fall shows that in 2009, 61 percent of companies in its survey included these workers in its bonus pools, and 83 percent included salaried “exempt” workers — white-collar professionals who aren’t eligible for overtime.
But by 2011, just 43 percent of companies were including these clerical and technical workers in their incentive programs, and that percentage hasn’t really recovered. It ticked up slightly to 47 percent in 2012, but in 2014, only 43 percent of companies were again handing out bonuses or other cash awards to these workers. Meanwhile, 93 percent of companies now give them to white-collar professionals.
“It’s the haves and the have-nots,” says Ken Abosch, who leads the firm’s broad-based compensation practice for North America. “There seems to be a different set of standards that organizations have — and I would say inexplicably, in many cases — for the disparity in value they perceive in different levels of the organization.”
While the companies that respond to the firm’s variable pay survey are not identical from year to year, Abosch says the overlap is greater than the firm’s annual salary survey and consistent enough that he’s “very confident” in the reliability of the downward trend the data reveals. “This is not just about changes in participation in the survey,” he said.
The finding comes at a time when companies are increasingly rewarding bonuses and short-term incentives to their white-collar workers as a way of competing for talent in an improving labor market — but without having to make the more permanent move to lift base pay. Not only are bonuses generally tied to performance metrics that companies hope will boost productivity, they’re also far easier to limit or even take away than raises are if times get tough.
Back in 1988, for example, when Aon Hewitt started tracking the data, the percentage of payroll that went to raises on base pay was 3.9 percent; another 5 percent went to funding bonus programs. Fast forward to 1998, and those numbers were 4.2 percent and 8 percent, respectively.
But ever since 2009, when the recession prompted base pay raises to fall sharply — they’ve recently been flat, at 2.9 percent for three straight years — bonus pools have climbed quickly, reaching 12.9 percent last year.
“There’s been a dramatic change in the pay at risk,” says Abosch. But “what this data is telling us is a very large segment of the workforce is not participating in that form of compensation. They’re really … being disadvantaged on lack of salary growth and the inability to participate in variable pay.”
Many companies also don’t extend their expanding bonus pools to non-union hourly employees, which Aon Hewitt’s report also includes. The firm’s data show that in 2014, 17 percent of companies made these employees eligible. That’s slightly higher than the 13 percent who did so last year, but that number also hasn’t changed much since 2009.
The numbers appear to be evidence that corporate leaders either don’t worry about finding enough talented clerical and technical employees, or don’t know how to evaluate or differentiate the work that they do, Abosch says. Or, with only so much to spend, they could simply be placing their bets on those workers for whom competition is the most fierce. “There is a fixed pot of dollars, so leaders are trying to figure out where they’re going to get the biggest bang for the buck,” he says.
Still, that approach could be short-sighted. Including lower-paid employees in the widening bonus pool could still lead to better retention, loyalty and productivity among them, Abosch says. “Let’s not forget that they are certainly partly responsible for generating the bonuses that are being paid out at the other levels.”
