CORPORATE LEADERSHIP COUNCIL

JANUARY 2006
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PULSE SURVEY RESULTS

2006 Salary Increases

Survey Results Overview
Projected salary increases for FY 2006 average 3.9%, with all companies reporting increases between 3% and 5%. Actual salary increases for FY 2005 averaged 3.7%, with most companies reporting increases between 3% and 5%. On average, 92% of employees are eligible for base salary increases in FY 2006. Salary increases may vary between a companys global locations but not between locations within the United States. Slightly fewer than half of companies maintain equity adjustment funds. Most companies finalize their salary budgets in the last three months of the year. Companies use competitive benchmarks, hire consultants, and assess company financial reports to assist with salary budget decisions.
Recommended Reading For additional survey data on salary increases in 2006, please review the following Council study: U.S. and Canadian Salary Increases for 2006, Corporate Leadership Council http://www.corporateleadershipcouncil .com/ShortLink?nLinkId=1473552

Projected Salary Increases for FY 2006

Projected Salary Increases Average 3.9%Companies report projected salary budget increases of between 3% and 5% for FY 2006. Most employers indicate that executives will receive salary increases equal in percentage to those of other employees, including both exempt and non-exempt, while a few note differences between employee levels, as shown below. The breakdown of salary budget increases is as follows:
Figure 1: Projected Salary Budget Increases for FY 2006 Variation in Salary Increases among Employee Groups

Number of Companies

6 6

3 1 0 0 Under 3% 3% to 3.9% 4% to 4.9% 5% and over Projected 2006 Salary Budget Increase

Nine companies reported the same salary budget increases for all employee groups (exempt, non-exempt, executive) Two reported higher increases for executives One reported lower increases for executives One reported lower increases for non-exempt employees

Actual Salary Increases for FY 2005

Actual Salary Increases Average 3.7%Actual salary budget increases in FY 2005 were slightly lower than those projected for FY 2006. With two exceptions, all companies reporting data for FY 2005 are the same as those reporting data for FY 2006. Eleven of 13 respondents note that executives received similar salary budget increases as other employees, both exempt and nonexempt; variations are shown below. The breakdown of salary budget increases in FY 2005 is as follows:
Figure 2: Actual Salary Budget Increases for FY 2005 Variation in Salary Increases among Employee Groups

Number of Companies

6 6

1 0

0 Under 3% 3% to 3.9% 4% to 4.9% 5% and over Actual 2005 Salary Budget Increases

More companies reported variations in their salary budgets in FY 2005 than projected for FY 2006 Five companies reported the same salary budget increases for all employee levels Six reported lower increases for non-exempt employees One reported lower increases for executive employees

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2006 SALARY INCREASES

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PULSE SURVEY

Salary Increases by Employee Groups

Ninety-Two Percent of Employees are Eligible for Base Salary IncreaseCompanies reported that most employees are eligible for base salary increases. At four of seven reporting companies, nearly all employees are eligible. The remaining three companies indicate that between 40% and 90% of employees are eligible with variations based on employee level. Slightly fewer executives are eligible for base salary increases than other employees, as shown in the figure below:
Figure 3: Percentage of Employees Eligible for Base Salary Increases in FY 2006

Average % of Employees Eligible for Base Salary Increase

100% 50% 0%

92.3%

91.3%

92.8%

82.0%

All Employees

Non-Exempt

Exempt

Executives

Employee Group

Salary Budget Increases May Vary Between Global Locations, but Not Between Locations Within the United States Slightly less than half of reporting companies indicate that their salary budget increases may vary globally. In contrast, 13 of 14 reporting companies indicate that their salary budget increases do not vary between locations in the United States.
Figure 4: Percentage of Companies with Global Variations in Salary Budget Figure 5: Percentage of Companies with U.S. Variations in Salary Budget

No Variation, 58%

Variation, 42%

Variation, 7% No Variation, 93%

Equity Adjustment Funds

Companies Are Split on Equity Adjustment FundsEight of 14 companies report that they do not maintain equity adjustment funds as part of the salary increase budget. Of the remaining six companies with equity adjustment funds, the projected adjustment ranges from zero to 2.7%. With regard to the equity fund as a percentage of the total salary increase budget, company responses vary widely, from 0.2% of salary budget to 33.3%.
Table 1: Equity Adjustment Funds as Part of Salary Budget Increases* Company B E H J K Size of Equity Adjustment Fund as a Percentage of Salary Increase Budget n/a 1% 12.5% 1%** 33.3%*** Projected Equity Adjustment Fund Increases for FY 2006 2.7% 1% 0.5% 1%** 1%

N 0.2% 0% *Only those companies with equity adjustment funds are included in Table 1. **Company Js equity adjustment fund is for executives only ***The respondent from Company K indicates that 2006 is the first year the company has budgeted for a supplemental increase fund, thus increasing the size of the equity adjustment fund.

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2006 SALARY INCREASES

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PULSE SURVEY

Salary Budget Planning

Over Half of Companies Finalize Salary Budgets in Q4Eight of 14 respondents indicate that they finalize their salary budgets in the final three months of the year, as shown in the figure below:

Figure 6: Salary Budget Planning Timelines

Number of Companies Responding

10 5 0 Jan.-Mar. Apr.-Jun Jul.-Sept.

Oct.-Dec.

Salary Budgeting Process Timeline and Staffing VaryThe majority of respondents indicate that the finalizing process lasts less than three months; among all respondents, the process lasts no longer than six months. Additionally, most companies have fewer than three individuals working on finalizing salary budgets. The charts below indicate the breakdowns of timing and staffing for salary budget planning:
Figure 7: Average Time for Completion of Salary Budget Planning Figure 8: Average Staff for Salary Budget Planning Process

3-6 Months 14%

More than 6 People 7% 3 to 6 21% Few er than 3 People 72%

Less than 3 Months 86%

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2006 SALARY INCREASES

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PULSE SURVEY

Salary Budget Planning (Continued)

Companies Use Competitive Benchmarks, Consultants, and Company Financial ReportsWhen making their salary budget decisions, all companies use competitive benchmarking, and most use company financial reports and budgets. Slightly fewer than half use recommendations or input from external consultants. Additional information on resources for salary budget decisionmaking is available in the table below:
Table 2: Resources Used in Salary Budget Decisions Specific Resource Employee External Consultant Company Satisfaction Input/ Financial Surveys Recommendations Reports/Budgets CPI 1 7% 6 43% 9 64% Following consistent level compensation strategy Pay positioning by level Analysis of organizational data

Company A B C D E F G H I J K L M N Total Usage Total Percentage

Competitive Benchmarks 14 100%

Other*

*As reported by company respondents

Communication of Salary Budget Changes

Policies Vary on Communicating Salary Budget ChangesSeven of 14 companies indicated that they communicate salary budget changes to at least one group of employees, while four indicated that they communicate changes to all employees. The table below compares the types of communications used by each of these four companies:
Table 3: Communication Channels for Salary Budget Increases* Face-toMeetings Broadcast Company Other/Additional Notes** Face with Direct E-mail Newsletter Meetings Manager Not used by any profiled companies Company sends e-mail communication only to management Company D communicates only the changes and results, not the salary budget as a whole Company gives communications only to mangers and those with budget responsibilities Company only communicates increases, not the salary budget as a whole Employees receive the variable bonus component in a letter from the direct manager

Compan y A B C D K M N

Intranet

*Only those companies that responded are included in Table 3 **As reported by company respondents

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2006 SALARY INCREASES

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PULSE SURVEY

Overview of Survey Participants

Table 4: Overview of Survey Participants Employee Range Sales Range Less than 2,000 2,00010,000 10,00050,000 50,000100,000 Less than 2,000 2,00010,000 10,00050,000 2,00010,000 2,00010,000 10,00050,000 10,00050,000 10,00050,000 10,00050,000 10,00050,000 $2 billion$5 billion $5 billion$10 billion $2 billion$5 billion More than $10 billion Under $500 million $500 million$2 billion $2 billion$5 billion $500 million$2 billion $500 million$2 billion More than $10 billion More than $10 billion $2 billion$5 billion More than $10 billion $2 billion$5 billion

Company A B C D E F G H I J K L M N

Industry Health Products & Services Energy and Utilities Financial Services Heavy Manufacturing Pharmaceutical Real Estate Professional Services Construction Retail Financial Services Financial Services Chemicals Energy and Utilities Heavy Manufacturing

PROFESSIONAL SERVICES NOTE

The Corporate Leadership Council (CLCTM) has worked to ensure the accuracy of the information it provides to its members. This project relies upon data obtained from many sources, however, and the CLC cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the CLC is not engaged in rendering legal, accounting, or other professional services. Its projects should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither Corporate Executive Board nor its programs are responsible for any claims or losses that may arise from any errors or omissions in their reports, whether caused by Corporate Executive Board or its sources.

2006 Corporate Executive Board. All Rights Reserved.