Economy, increase in performance pay are factors

by Jennette Smith
2007 Crains Detroit Business

"(Employers) have to get more out of their employees,” said Matthew Pulliam, a Southfield-based consultant for Watson Wyatt who presented a session on variable compensation at the society's conference Thursday at the Rock Financial Showplace. “They will not pay out unless they have the performance to back it up.”

Overall payroll reports from employers show base salaries up an average 2.2 percent in 2007 compared with 3.62 percent in 2006 and 3.56 in 2005. (For more results, see box, at left.) For companies that offer a merit raise structure, 2007 projections range from 3.22 percent to 3.4 percent.

Of the companies surveyed, 84 percent have less than 500 employees and just less than half are manufacturing-related. Kevin Marrs, director of survey services for ASE, said given the cost-cutting pressure in the manufacturing sector, the modest results are similar to recent years. Merit raises have hovered under 4 percent since 2001-2002.

Some form of a variable pay system seems to be more important for larger companies, and while 20 percent of variable pay plans have no effect on business outcomes, about 80 percent do, according to other industry research, Marrs said. Factors important in a variable compensation plan include accuracy in measuring performance, communication and an emphasis on individual performance, Marrs said.

Another survey by Watson Wyatt found that employers are putting more money into performance-based rewards. A third of the participants in a 2006-2007 national strategic rewards report said they had increased cash incentives in 2006.

Of the companies that use variable pay for hourly, salaried and executive employees, annual bonuses are the most common type of variable pay.

Sales and marketing positions are most weighted with variable pay, followed by legal, human resources and accounting jobs. Increasingly, not only are managers eligible, but so are support staff.

“We're finding more employers offering variable compensation to a broader range of the employee population,” Marrs said. “Even the administrative assistant might be eligible for some type of reward. In years past, those rewards were just for the top management.”

Norm Fletcher, marketing and creative director for Think 360 Creative in Troy, said he works almost exclusively on a performance-based pay system. Fletcher has a small staff and pays a stable of freelancers on a per-project basis.

Overall, he said, inflated historical pay scales in the local advertising industry because of longstanding automotive accounts have made it hard at times to negotiate competitive rates.

However, rates are coming down to reality and more in line with other cities such as Minneapolis, he said. At the same time, quotes for clients are increasingly based on specific business goals, such as helping a bank increase deposits.

Jennette Smith: (313) 446-0414, jhsmith@crain.com