A new survey from Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation, reveals that compensation budgets are likely to remain intact for 2011. Additionally, few companies anticipate having to take drastic actions such as pay freezes to reduce costs.

Aon Hewitt's survey of more than 500 employers found that three-quarters of companies expect to reach or exceed business performance goals this year, leading to the stabilization of pay and variable pay budgets in 2011. Most companies (56 percent) made no revisions to their original base salary increase budgets, which are anticipated to be at their highest levels in two years. In 2011, salary increases for salaried exempt workers (those workers for whom overtime rules do not apply) are expected to be 2.8 percent. This is up from 2.4 percent in 2010, and significantly higher than the record-low pay raises workers saw in 2009 (1.8 percent).

"Prior to the recession, companies were optimistic about their compensation budgets but ultimately scaled back from their original projections in an effort to control costs," explained Ken Abosch, marketing strategy and development leader in Aon Hewitt's Broad-Based Compensation Consulting practice. "As business performance increases, organizations are more comfortable with stabilizing salary budgets. That said, we will not see base pay raises return to pre-recession levels, as these sub-3 percent increases represent the new 'normal' in base-pay spending."

Spending on variable pay—performance-based awards that must be re-earned each year—is also holding steady. Updated findings show 2011 spending on variable pay as a percentage of payroll will be 11.6 percent for salaried exempt workers, down just slightly from original projections of 11.8 percent.

"We'll continue to see employers move toward compensation models that reward employees for strong business and individual performance," said Abosch. "Despite economic instability, employers spent more on variable pay in the past three years than they ever have before. Workers should be encouraged that there are still compensation dollars out there, but they will be expected to show strong results to earn them."

In addition, Aon Hewitt's survey shows that none of these organizations anticipate cutting pay in 2011, and just 11 percent plan to freeze salaries for salaried exempt and non-exempt workers next year, which is similar to 2010, when 12 percent of organizations froze salaries.