While many workers may grumble about seemingly small single-digit pay raises, more and more companies also are giving out something often as good as money these days–stock options.
Two new studies released Friday showed that while the average base raise this year is about 4 percent, an increasing number of employers are turning to incentive-based pay programs.
Up to 29 percent of companies–more than twice as many as two years ago–said they will offer stock options, a perk formerly reserved for top executives, to non-managers.
“There are a number of factors involved in determining salary increases, including variable pay plans and company stock programs, that are holding the line on raises,” said Wallace G. Nichols, executive director of the American Compensation Association, which released one of the annual pay raise surveys.
Ken Abosch, compensation executive with Hewitt Associates, a Lincolnshire-based management consulting firm, said the nation is seeing “a broader focus on total compensation and a decline in focus on base salary.”
Hewitt’s annual survey of 1,244 employers showed an average salary increase of 4 percent this year and 4.1 percent projected for 1998.
The inflation rate is hovering around 1.4 percent for the first half of the year, meaning that even a 4 percent raise puts workers ahead of rising prices. That is a pattern that has held over the last five years.
“Variable pay plans are popular because they are funded by results, allowing organizations more flexibility on how to reward employees, giving employees more total earning potential, and fostering a feeling of ownership within the company,” Abosch said.
Variable pay is sometimes more popular with employers than employees, however.
Everett Boyles, a 34-year-old personal computer analyst interviewed Friday, said a variable pay program is only justifiable if a company is experiencing trouble.
“If the company’s not in hardship, they should find a way to give good salary increases,” he said.
For struggling companies, “I understand what they’re doing” with a variable pay program, he said. “They’re trying to save money but still keep employees happy. And employees think they have a stake in the company by having something (like stock options) that’s long-lasting.”
Even so, Boyles said, it still isn’t as good as a nice pay raise.
Paul Matylonek, 32, who is in public relations, had a different view. He said variable pay might actually make compensation more tied to real performance rather than to whim and office politics.
“I’m paid by salary, and if I were to lose an account I’d probably get fired,” Matylonek said. “But if I get a good client, the company congratulates me and says kudos and that’s about it. You have no guarantee you’ll get promoted.
“So, in a way, if the company does well, you’ll get more money regardless of what the upper management thinks of you.”
The compensation group’s annual survey of some 2,600 companies found salary increases ranging from an average of 4.1 percent to 4.5 percent for various categories of employees.
Its survey results showed a continuing trend to expand participation in stock plans to all levels of employees. Stock option plans are offered to 93 percent of executives, it found, and the percentage is growing for the rank and file, ranging from 16 to 20 percent for non-managers.
“Stock options are a growing trend,” said Abosch. “We found 29 percent of U.S. corporations are now offering them, up from only 13 percent two years ago. They are the darling of the corporate world and employees like them because options make them feel like insiders.”
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How do they work?
Huge Chicago printing company R.R. Donnelley & Sons Co. began offering “Donnelley Shares” to employees in March 1994.
Don Bergen, manager of compensation, said some 22,000 employees were given an option to buy 100 shares at the market price, then just over $29 a share, for a period of 10 years. Donnelley awarded another option for 100 shares in 1995 and one for 50 in 1996.
The options have to be held for three years, then could be cashed in for the increase in share value, exchanged for Donnelley stock or held for further appreciation.
“Since March, we’ve had about 1,200 exercised for a short-term profit,” Bergen said. “I think most of our employees like the program and have taken to one of our slogans–act like you own the place.”
Fern Zamoff, a 25-year-old benefits analyst for a health insurance company, agreed.
“People need to feel they’re part of a team in order to feel like they’re truly part of a company. To base at least some of the salary on the performance of a company helps make the company more cohesive,” she said.
“The biggest challenge is to help educate the work force about what the company’s goal is.”
But Larry Winkelman, a 49-year-old director of information systems for a financial services company that has a variable compensation plan, points out that such a plan adds uncertainty to a worker’s life.
“It provides an opportunity for people to make more money. In our case, because we’re doing well, our employees are being compensated better than they would elsewhere. The drawback is it’s atypical for most companies. So, from the perspective of employees at other companies, there’s no guarantee. And that’s scary for some people.”