Economic forecasts for 2011 are a mixed bag for senior executives in retail companies. Executive compensation packages and salary increases are expected to be healthier than in the last two years, but the overall economy is, at best, in a state of stagnation.
The Society for Human Resource Management, or SHRM, based in Arlington, Va., projected median salaries across all industries would rise 3% this year, compared with the more modest 2.5% increase that was the median in 2010.
Similarly, a recent survey of more than 1,450 large companies conducted by AON Hewitt, a human resource consulting firm headquartered in Lincolnshire, Ill., predicted a 2.9% salary increase for executives in 2011, a moderate uptick from last year’s 2.4% increase but an impressive spike over the 1.4% increase that was the norm in 2009.
The 2010/2011 U.S. Compensation Planning Survey conducted by New York-based Mercer drilled deeper into specific industries and concluded the retail industry would experience average salary increases of 2.8% in the coming year.
The real opportunity to increase earnings, according to many in the industry, will be through bonuses and incentives — perks that will likely extend from the most senior executives into middle management.
The Hay Group, which has its global headquarters in Philadelphia and does management consulting for some of the largest retailers, including Wal-Mart Stores, The Home Depot and Macy’s, reported that 39% of companies have already increased or have plans to increase the proportion of variable pay in compensation packages.
For example, Sears Holdings Corp. awarded its CFO a 16.7% merit increase, from an annual salary of $600,000 to $700,000, but the executive’s total targeted cash award increased by 26.7% because the incentive plan was raised from 75% of the fiscal 2010 salary, a targeted bonus of $450,000, to 90% of the fiscal 2011 salary, a targeted bonus of $630,000.
Incentives are typically defined as “targets” because, as the Hay Group stressed, there is a renewed focus on performance-based criteria. The company conducted a survey of more than 1,300 companies and analyzed detailed data from an internal database of more than 14,500 organizations to arrive at its assessments.
Performance-based pay is definitely on the rise, agreed Bob Cartwright, president and CEO of Austin, Texas-based Intelligent Compensation and a member of the Total Rewards/Compensation and Benefits Special Expertise Panel for SHRM. The difference, Cartwright noted, is that in the current environment, incentive compensation will be based largely on the individual’s contribution to the company’s performance.
Research by the Hay Group supported this thesis, with 51% of the companies surveyed indicating they would rely on “hard” financial metrics such as revenue, profit and sales to evaluate the performance of individual contributors.
This approach presents a slippery slope for retail executives, many of whom face an uphill battle if they are to exceed expectations for the new fiscal year. One issue is that year-over-year improvements will be harder to achieve this year than in 2010, when retailers were competing against back-to-back years of dismal comp sales in 2008 and 2009. From this perspective, some may view retail executives as victims of their own successes.
Truthfully, however, the stalled economy remains the real culprit. Performance-based pay usually takes a hit when a company is unable to grow its bottom line, and the domestic market looks bleak with the U.S. GDP expected to decline from 2.6% in 2010 to an even more sluggish 2.2% this year.