2016/2017 UNITED STATES COMPENSATION …...2016/2017 UNITED STATES COMPENSATION PLANNING EXECUTIVE SUMMARY Actual increases for non-union employees averaged 2.9% (excluding zeros)

H E A LT H W E A LT H C A R E E R

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U N I T E D S TAT E S C O M P E N S AT I O N P L A N N I N G E X E C U T I V E S U M M A R Y

Mercer is pleased to present the results of the 2016/2017 US Compensation Planning Survey. Data was collected for 1,222 organizations in May and June, 2016 and the survey is the largest and most comprehensive US salary increase survey available. The following report depicts information for non-union employee groups. For information pertaining to unionized employees, please refer to the detailed report or PayMonitor®.

In 2016, approximately 93% of surveyed organizations awarded salary increases across non-union employee groups. While salary increase budgets have remained relatively unchanged for the last several years at 2.8%, organizations are reporting other changes that indicate a shift in how they are differentiating and rewarding high performers. While the elimination of performance ratings has been receiv-ing a lot of attention, 91% of organizations do still report using individual perfor-mance to distribute merit increases. And, for those employees that are identified as high-performers, organizations are providing almost twice the merit increase than what is provided to average performers.

INTRODUCTION

2016/2017 UNITED STATES COMPENSATION PLANNING EXECUTIVE SUMMARY

2.8% 2016 ACTUAL INCREASES

(incl. 0s) 2.9% 2017

PROJECTED INCREASES (incl. 0s)

DETERMINE INCREASES BASED ON INDIVIDUAL

PERFORMANCE

91%TIMES THE SALARY IN-

CREASE OF AN AVERAGE PERFORMER IN 2016

HIGH PERFORMERS GET

1.8

2


Actual increases for non-union employees averaged 2.9% (excluding zeros) and 2.8% (including zeros), which was fairly consistent across all employee groups.Salary increase budgets for 2017 are also projected to be relatively unchanged at 2.9% (including and excluding zeros) with the vast majority of organizations (71%) planning to keep budgets the same from 2016 to 2017. Only 18% of organizations projected their 2017 salary budgets to be higher than in 2016, up from 13% last year. The primary motivator for the increase was to account for salary freezes and/or delayed or lower than normal increases in previous years. Only 11% of organi-zations currently expect to lower their salary increases in 2017 from 2016 increase levels. The most common reason is that business and/or industry performance was weaker than expected.

Most organizations (75%) reported that they used 100% of their salary increase budget toward salary increases. Of the 25% of organizations which did not use the entire budget, 45% were able to reallocate funds for other purposes, such as off-cycle increases or adding to the promotional increase budget. Organizations also reported spending the unused portion of their salary increase budgets to ad-dress high performing and/or high flight risk employees and for hiring new talent.

SALARY INCREASE BUDGETS BY EMPLOYEE GROUP

ACTUAL PROJECTED2015 2016 2017

excl. 0s incl. 0s excl. 0s incl. 0s excl. 0s incl. 0s

All Employees (Non-Union) 2.9% 2.8% 2.9% 2.8% 2.9% 2.9%Executive 3.0% 2.9% 3.0% 2.7% 3.0% 2.9%

Management 2.9% 2.8% 2.9% 2.7% 2.9% 2.9%Professional (Sales) 2.9% 2.8% 2.9% 2.7% 2.9% 2.8%

Professional (Non-Sales) 2.9% 2.8% 2.9% 2.7% 2.9% 2.9%Office/Clerical/Technical 2.9% 2.8% 2.9% 2.7% 2.9% 2.9%

Trades/Production/Service 2.8% 2.7% 2.8% 2.6% 2.9% 2.8%

Percentages are averages. Actual 2015 numbers from the 2015/2016 US Compensation Planning Survey.

3

SALARY INCREASE BUDGETS


ACTUAL PROJECTED

2015 2016 2017Banking/Financial Services 2.9% 2.9% 2.9%

Chemicals n/a 2.7% 2.8%Consumer Goods 2.8% 2.9% 2.9%

Energy 2.6% 2.3% 2.4%Healthcare Services* 2.5% 2.8% 2.8%

High Tech 2.9% 2.9% 2.9%Insurance/Reinsurance 2.9% 3.0% 3.0%

Life Sciences 2.9% 2.9% 3.0%Logistics n/a 2.3% 2.2%

Mining & Metals 2.7% 2.6% 2.2%Other Manufacturing n/a 2.7% 2.8%

Other Non-Manufacturing 2.8% 2.8% 3.0%Retail & Wholesale 2.9% 2.8% 3.0%

Transportation Equipment 3.1% 2.9% 3.0%

SALARY INCREASE BUDGETS BY INDUSTRY (INCL. 0S)

For most industries, salary increas-es were virtually unchanged in 2016 compared to 2015, with little to no change projected for 2017. But when looking further into the data, industry differences emerge, with Energy recording one of the smallest increases in 2016, at 2.3% (among industries with significant sample size).

The majority of organizations (92%) do not vary salary increase budgets by geographic location. Excluding the impact of salary freezes, salary increases were similar across the Major Metropolitan Areas in the US in 2016. However, differences can be seen when salary freezes are considered, especially in Greater Houston, where the increase for 2016 was 2.5%, driven by the En-ergy industry.

This year, the Energy industry has seen salary increase budgets drop even further, continuing last year’s trend due to declining oil prices through much of 2015.

n/a = data not available for 2015. * Healthcare Services is an Industry Sector and is included in the Services (Non-Financial) Industry Super Sector.

Including organizations with salary freezes, salary increase budgets for the Energy industry dropped to 2.3% in 2016 and 2.4% in 2017.

4

SALARY INCREASES BY INDUSTRY


31% The average of salary freezes across employee groups in 2016 for the Energy industry

4% The average of salary freezes across employee groups in 2016 for non-Energy industries

3.2%

1.9%

2.1%

1.4%

1.4%

1.6%

5.4%

3.5%

4.2%

3.4%

3.4%

4.2%

1.1%

0.8%

1.1%

0.7%

0.6%

0.8%

0%5%10%15%20%

23.4%

19.2%

26.7%

19.4%

19.2%

21.7%

29.8%

27.2%

38.0%

27.4%

28.0%

32.7%

13.7%

13.6%

19.5%

13.6%

13.6%

15.9%

0% 10 %20% 30 0%%4%4%4

SALARY FREEZES BY EMPLOYEE GROUP

ENERGY INDUSTRY ONLY

EXCL. ENERGY INDUSTRY

EXECUTIVE

MANAGEMENT

PROFESSIONAL (SALES)

PROFESSIONAL (NON-SALES)

OFFICE/CLERICAL/ TECHNICAL

TRADES/PRODUCTION/SERVICE

201520152016201620172017

Overall, there was an uptick in salary freezes in 2016 due to a significant increase in freezes in the Energy industry.The overall percentage of organizations reporting salary freezes increased from approximately 4% in 2015 to 7% in 2016, stemming primarily from the Energy industry which saw the prevalence of salary freezes in 2016 rise significantly.

Energy reported the highest percentage of salary freezes, with 31% of orga-nizations freezing salaries in 2016, and 15% projecting to do so in 2017. The chart below shows detail of salary freezes for the Energy industry and for all organizations excluding Energy.

5

SALARY FREEZES

PROMOTIONAL INCREASE BUDGETS


FIVE YEAR TREND – PROMOTIONAL INCREASES AS A PERCENT OF BASE SALARY (EXCL. 0S)

50% of organizations budgeted

promotions separately in 2016

1.2% of payroll budgeted

for promotions in 2016

Overall, 50% of organizations budget separately for promotional increases, up from 41% in 2015. The average promotional budget represented 1.2% of payroll in 2016, up from 0.9% in 2015. Average promotional increases (as a percent of base) were 7.7%, ranging from 6.6% (Trades/Production/Service) to 8.7% (Executive).

There were no significant year-over-year changes to promotional increases by employee groups. The group that showed the greatest decline year-over-year was Trades/Production/Service, which decreased to 6.6% in 2016 from 7.2% in 2015.

The following graph provides the average actual promotional increase (as a per-cent of base salary) by employee group from 2012 through 2016.

EXECUTIVE

MANAGEMENT

PROFESSIONAL (SALES AND NON-SALES)OFFICE/CLERICAL/ TECHNICAL

TRADES/PRODUCTION/SERVICE

5%

6%

7%

8%

9%

10%

2012 2013 2014 2015 2016

6


2017

STRUCTURE ADJUSTMENTS BY INDUSTRY (EXCL. 0S)

2016

2.4%

2.5%

2.2%

2.1%

2.0%

2.2%

2.3%

2.0%

2.5%

2.0%

2.2%

2.2%

2.3%

2.3%

Over the past four years, the percent of organizations adjusting their salary struc-tures has increased from 66% in 2013 to 72% in 2016. That trend is expected to continue, with 80% of organizations planning to adjust their salary structure in 2017, a sign of improving confidence in the economy. The average actual salary adjustment in 2016 was 2.3%, slightly lower than 2015 levels, and is projected to be similar in 2017 at 2.2%, with differences most prom-inent by industry. The following graph presents average structural adjustments for 2016 as well as projections for 2017, by industry.

The practice of annual structure adjustment is the norm for most organizations. The majority of participating organizations (85%) reported having a formal salary structure.

2.8% Salary Structure Adjustments for High Tech industry in 2016

Banking/Financial Services

Chemicals

Consumer Goods

Energy

Healthcare Services*

High Tech

Insurance/Reinsurance

Life Sciences

Logistics

Mining & Metals

Other Manufacturing

Other Non-Manufacturing

Retail & Wholesale Transportation

Equipment * Healthcare Services is an Industry Sector and is included in the Services (Non-Financial) Industry Super Sector.

80% of organizations plan to adjust their salary structure in 2017

2.9%

2.6%

2.3%

2.3%

2.2%

2.0%

2.5%

2.1%

2.8%

2.2%

2.3%

2.3%

2.3%

2.3%

7

STRUCTURE ADJUSTMENTS


Lump sum payments continue to be used as a technique to pay for performance without increasing fixed costs. Sixty percent of participating organizations awarded lump sum payments in lieu of all or a portion of salary increases in 2016.

Lump sum payments have steadily increased over the past four years, up from 53% in 2013.

Over half of the organizations that use lump sum payments base it on both individual performance and position in the salary structure range. The most common reason for using lump sum payments is to reward “red-circled” employees.

Combination of performance and

positioning in range

51%

33%

16%Positioning in salary structure range

Performance

8

LUMP SUM PAYMENTS

60% of organizations use of lump sum payments, up from 53% in 2013


Increased eligibility 7%

9% Increased target payout opportunity

Eighty-five percent of organizations have incentive plans for at least one segment of their population, relatively unchanged since 2015.Company-wide corporate plans are the most widely used form of incen-tives, used by 65% of organizations. On average, incentive payouts in 2016 (for performance in 2015) were paid at or close to target level for all employee groups across participating organizations.

Organizations were asked about changes they have made to the el-igibility and opportunity in their short-term incentive plans. While most organizations did not make a change to their plan, 7% in-creased eligibility and 9% increased opportunity.

3%

4%

7%

9%

16%

30%

30%

34%

36%

44%

65%

Other

Gainsharing plans

Cash profit sharing

Project milestone incentives

Team/small group incentives

Discretionary awards

Individual incentives

Management incentives

Spot cash awards

Sales incentives

Company-wide corporate plan

9

SHORT-TERM INCENTIVES

Average incentive payout (as a % of target) in 2016 was at or close to

100% across all employee groups

DIFFERENTIATING PAY BY PERFORMANCE RATING Organizations continue to differentiate pay for performance through base salary and incentives. Ninety one percent of organizations use individual performance to drive base salary adjustments and 63% of organizations use individual performance when making incentive award decisions. Of those organizations which use individual performance to drive base sala-ry increase decisions, only 6% did not use individual performance ratings in 2016.The majority of participating organizations use the same number of perfor-mance ratings for both incentive plan payouts and salary increases, with the majority using 5 level rating system for base salary increases (55%) and incentives (49%).For organizations with a 5 level rating system, employees with the highest rated performance represented 7% of the workforce and received an average salary increase of 4.7%. The average increase for the highest performers is expected to increase slightly to 4.9% in 2017.


SALARY AND INCENTIVE INCREASES BY PERFORMANCE RATING

High performers get

1.8 times the salary increase of an average performer in 2016

High performers get

1.4 times the incentive payout of an average performer (as a % of target)

HIGHEST

NEXT HIGHEST

MIDDLE

LOW

LOWEST

% of Workforce* Average Base Salary Increase

Average Incentive Payout as % of Target

7

29

56

6

2

*Based on salary increases.

4.7%

3.6%

2.6%

1.0%

0.1%

0%1%2%3%4%5%

140%

119%

99%

51%

8%

0% 50% 100% 150%

10


UNDER CONSTRUCTION

SHORT-TERM INCENTIVES &

BASE PAY

51% will use manager discretion to align pay and performance (among those eliminating ratings)

28% will use cross-organization calibration sessions to align pay and performance (among those eliminating ratings)

Approximately one-third of organizations plan to revisit their total rewards strategy in the next 6-18 months. The two most cited reasons organizations are revisiting their total reward strategy are to improve the ability to attract and/or retain employees and a change in or-ganization and HR strategies (37% and 29% of organizations, respectively). The elements of the total reward program most frequently cited as ‘under consideration for change’ include short-term incentives and base salary.

11

HOT TOPICS

Total Rewards

The vast majority of organizations still have no plans to eliminate performance ratings (83%). However, 4% of organizations are planning to eliminate ratings and another 11% are considering eliminating in 2016 and beyond. Of those eliminating ratings, all of them still plan to align pay and performance by other means, such as manager discretion and cross-organization calibration sessions.

Performance Management


85% Illustrate career opportunities

72% better define jobs

PRIMARY REASONS FOR A CAREER FRAMEWORK

65% of companies surveyed have, or are planning to implement, a career framework

D E V E L O P

A

R C H IT E C T U RE

CAREERFRAMEWORK

BU

I LD

C O

NT

EN

TLE

VE

R

A G E

TE

CH

N

OL O G Y

Selectionand Retention

Succession Management

Workforce Planning

Career Management

PerformanceManagement

Rewards

Career Frameworks are becoming an important part of many organizations’ HR infrastructure. Close to half of the organizations (44%) indicate they currently have a career framework to manage talent and/or rewards programs, with another 21% that are planning to implement one.Career frameworks are being used for a variety of purposes and are ul-timately connected to a number of Talent and Reward Programs, with Career Management, Succession Planning and Training & Development leading the way.

The primary drivers for developing a Career Framework include “illustrat-ing career opportunities to employees” and “better defining jobs within the organization” (85% and 72% of organizations, respectively).

12

HOT TOPICS

Career Frameworks


4%

41%

42%

48%

52%

63%

68%Retention concerns (losing people)

Attraction concerns (need to buy talent from the external labor market)

Desire to provide career mobility and advancement opportunities

The overall economic climate

Concerns regarding employee engagement levels

Other

Need to strengthen the performance-based culture and deliver “pay for performance”

52% of organizations desire to provide career mobility and advancement opportunities

When planning for 2017, organizations continue to put retention and attraction concerns at the top of the list.Furthermore, there has been an uptick in the desire to provide career mobility and advancement opportunities to staff (up from 48% in last year’s survey).

13

PLANNING FOR 2017

Argentina

Australia

Austria

Belgium

Brazil

Canada

Chile

China

Colombia

Denmark

Finland

France

Germany

Hong Kong

India

Indonesia

Ireland

Italy

Japan

Malaysia

Mexico

Netherlands

New Zealand

Norway

Peru

Philippines

Poland

Portugal

Saudi Arabia

Singapore

South Africa

South Korea

Spain

Sweden

Switzerland

Taiwan

Thailand

Turkey

United Arab Emirates

United Kingdom

United States

Venezuela

For further information, please contact Your local Mercer office or visit our website at:

www.mercer.com

© 2016 Mercer LLC. All rights reserved.

400 West Market Street, Suite 700 Louisville, KY 40202-3415

Documents

2016/2017 UNITED STATES COMPENSATION …...2016/2017 UNITED STATES COMPENSATION PLANNING EXECUTIVE SUMMARY Actual increases for non-union employees averaged 2.9% (excluding zeros)