The 2012 Employee Compensation Report (2011 data) was recently released by the Profit Planning Group.  The report suggests some challenges for distributors, particularly in light of the still somewhat stagnant economy.  It is particularly useful to compare the '11 results to both the '07 results which still represented a period of economic boom and the '09 results at the start of the economic downturn.

Top Management Compensation

Since top management compensation has the largest bonus component, it most directly follows the change in the firm's financial performance.  Top management experienced decreases in the 5% to 10% range between 2007 and 2009.  Almost all of the decline was in the bonus component.

In 2011 management compensation rebounded, but only modestly.  For example, for the CEO the increase was only 7%.  The result was that CEO compensation in 2011 was still below 2007 levels.  Other management positions, which do not involve significant company ownership, tended to increase at a slightly more rapid rate.  Simply put, owners continued to pay themselves last.

Operating Employee Compensation

For most operating employees, compensation is largely driven by labor market issues and longevity. Between 2005 and 2007 total compensation increased for almost every operating employee position given tight labor markets. From 2007 to 2009, compensation remained almost unchanged. The era of wage stagnation continued through 2011.

Only a few select positions experienced compensation increases. These were largely confined to technical areas such as IT where there tends to be a shortage of qualified employees nationally.

Fringe Benefit Changes

Health care premiums continued to move forward relentlessly.  Between 2009 and 2011 total premiums increased between 20% and 30% depending upon the type of health care program offered.  Indemnity plans increased at a slower rate than HMO/PPO programs.

What changed dramatically in 2011 was that deductible levels, co-pays and the employee-paid percentage did not change.  All of these figures had increased sharply from 2005 to 2009.  Either firms felt they had pushed these factors to as high a level as possible or firms were wiating for implementation of the Affordable Care Act before responding more directly.

Employee Turnover

Employee turnover fell dramatically in 2011.  In both of the prior surveys the turnover rate was 17%.  In 2011 it was only 10%.  This probably reflects two factors.  First, the down sizing associated with the recession haasa finally come to an end.  Second, employees undoubtedly have fewer employment alternatives with a continued high unemployment rate.

The combination of stagnant wages for operating employees and the lack of turnover has the potential to represent a significant challenge to distributors when higher rates of sales growth return and labor markets tighten.  Employees may well veiw the last four years as a long period of personal sacrifice with regard to compensation.  They may well be looking for greater opportunities when economic conditions improve.

Click here to order the 2012 Employee Compensation Report.