Compensation Resources, Inc. Releases Its 2005 Year-End Compensation Survey

Results indicated that the average merit/salary increase for all employee functional groups was 4.0% in 2005, and 4.2% is the average projected merit/salary increase for all groups in 2006, an increase over 2004 year-end survey results. Generally speaking, Privately-Held companies reported higher percentages of actual 2005 and budgeted 2006 merit increases overall as compared to Publicly-Traded and Not-For-Profit organizations. As reported in 2004, survey participants indicated that they expected the number of layoffs, hiring freezes, and salary freezes to decrease from 2004 to 2005; in fact, projections were accurate, as respondents in this year’s survey reported actual decreases in these corporate events.

Highlights of this year’s results, including a comparison with the prior year’s findings:

MERIT/SALARY INCREASE 2004 Results 2005 Results Group Actual 2004 Projected 2005 Actual 2005 Projected 2006 Executive 4.3% 4.3% 4.5% 5.1% Management 3.8% 3.8% 4.1% 4.4% Exempt Salaried 3.6% 3.7% 4.1% 4.0% Non-Exempt Salaried 3.5% 3.6% 3.6% 3.7% Hourly/Production 3.5% 3.5% 3.8% 3.8% All Groups Average 3.7% 3.8% 4.0% 4.2%

These results reflect a general rise in merit increase budgets and awards, consistent with the upward swing in the marketplace with regard to labor conditions. Consistent with these findings is the general expectancy of the following corporate events among participants (including a comparison with the prior year’s findings): ACTION EXPERIENCED 2004 Results 2005 Results Action Actual 2004 Projected 2005 Actual 2005 Projected 2006 Layoffs 28.8% 13.5% 20.1% 11.4% Hiring Freezes 19.8% 9.0% 14.8% 6.7% Salary Freezes 7.2% 2.7% 9.4% 4.7% Cutbacks in pay 0.0% 0.0% 3.4% 1.3% Staffing Increases 46.8% 45.0% 50.3% 47.7%

Results indicated that target awards for Short-Term Incentive Plans are much higher in Publicly-Traded companies as opposed to Privately-Held companies and Not-for-Profit companies. Results also revealed that target awards as a percentage of base salary increase as revenues increase. Overall, in terms of Long-Term Incentive Plans, respondents report a general prevalence of cash-based plans within their companies; however, Non-Qualified Stock Options are the most commonly provided equity award in Publicly-Traded companies. Stock Appreciation Rights continue to be the least commonly used Long-Term Incentive Plan. In terms of the Compensation Package Mix, base salary remains the largest percentage of the mix among Privately-Held and Not-for-Profit organizations, followed by Annual Bonus/Incentives and Long-Term Incentives. On the other hand, there is an increased emphasis on Annual Bonus/Incentives and Long-Term Incentives among Publicly-Traded companies, particularly at the senior management and executive levels, since equity in the form of stock is a readily available commodity within these organizations.

Determining pay strategies can be a very difficult and tedious task; therefore, CRI recommends companies consider the following approaches:

Ø understand your employees’ perceptions about the total compensation package your company provides; Ø measure the distinct value of the reward to employee commitment and the organization; and Ø communicate to your employees about the business and the financial impacts of their rewards.

It is also important to remember that the total compensation package is not just about pay, it is also about the work culture, hours, benefits, career development, and promotional increases and how they balance with the employee’s life outside the organization.

Compensation Resources, Inc. (CRI) provides compensation and human resource consulting to a broad range of companies including start-up, emerging, and middle market companies. CRI specializes in Executive Compensation, Board Advisory Services, Salary Administration, Performance Management, Salary Administration, Sales Compensation, and Expert Witness services.

For more information on our consulting services, please contact us at (201) 934-0505 or visit our website at www.compensationresources.com. If you would like to order the complete report of the 2005 Year-End Compensation Survey, please contact Andrew Sellers at 877-934-0505 x115 or order online.

Contact: Paul R. Dorf, Ph.D., APD 877-934-0505 · Fax: 201-934-0737 prd@compensationresources.com www.compensationresources.com

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