Variable Pay Trend to Continue in 2012

“Three percent is the new 4 percent.” That’s according to Ken Abosch, the compensation group leader over at Aon Hewitt, which just released its pay forecast for 2012. Most employees won’t be seeing the average 4-percent merit pay increases of the late 1990s anytime soon, he says. Instead, according to Aon Hewitt’s projections, the focus will contine to remain on variable pay.

Aon Hewitt surveyed 1,494 large U.S. companies in June and July for its annual U.S. Salary Increase Survey and determined that base salaries for salaried exempt, executives, salaried nonexempt and non-union hourly workers will increase by 2.9 percent next year, up ever so slightly from this year’s 2.7-2.8 percent increases. (As a caveat, the firm notes that if current economic trends continue, the 2012 projections may come in lower than anticipated.)

The number of companies freezing employee salaries is also expected to continue decreasing for the third year in a row–not surprising, given that it was down to 5 percent this year from 21 percent in 2010, and way down from 48 percent in 2009.

Variable pay, aka performance-based pay plans, reached an all-time high this year, according to Aon Hewitt, with 92 percent of companies offering some sort of variable pay, compared to 78 percent in 2005. Even though this trend is expected to continue rising next year, companies are planning to set  aside a smaller percentage of their payrolls to fund these plans–11.5 percent next year, compared to 11.6 percent spent this year (which is itself down from the 11.8 percent companies had projected spending on variable pay this year).