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The Latest Trends in Variable Pay

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3 Plan Funding One of the most striking changes in compensation over the last two to three decades has been a change in pay mix – primarily attributable to the emergence of broad-based variable pay. Variable pay spending became material enough to track beginning in 1988 when salary increases averaged around 5% and variable pay spending was just under 4%. (See Figure 1) In just four years, variable pay spending overtook salary increase spending and never looked back. Three recessions later, salary increases are holding steady in the upper 2% range while variable pay spending is at record high levels at just under 13%. This is three times higher than the level of spending when broad-based variable pay was originally introduced in the 1980s. It is rare to see such a fundamental shift such as this one in compensation. Equally striking is the fact that companies were investing five to 10% of their payroll in total compensation growth (base plus bonus) in the 1980s and are closer to 15% of payroll today. Factor in the

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