For most American workers, pay raises have cooled along with the economy in the last two years. Given the continued sluggish outlook, it looks like the fast-growing paychecks of the past are going to stay there — at least for the time being.

In 2002, nationwide salary increases for salaried and non-union hourly employees averaged 3.5 percent, according to a survey conducted by Hewitt Associates, a Chicago-based human resources consulting firm. Hewitt Associates surveyed over 1,000 companies nationwide for its 26th Annual U.S. Salary Increase Survey and found that most expect to give workers a bigger raise next year, amounting to 3.8 percent. Though higher, that figure is still below 2001 levels when employers gave salaried and non-union hourly employees an average increase of 4.2 percent.

Industrial distribution employees have not escaped the downward trend. Over the summer, Industrial Distribution conducted its annual Compensation Survey and found that yearly earnings are growing at a much slower rate than they were in the late 1990s. Pay for industry professionals is expected to rise three percent to $70,000 this year. That follows a three percent increase in 2001, as well. In contrast, workers saw their pay jump by seven percent in 2000. In the last five years, our survey has shown an average yearly increase of 5.4 percent for all industry workers.

Though salary increases are slowing nationwide, some employees are still reaping the rewards of variable compensation plans, according to the Hewitt Associates study. Variable compensation is a performance-related award that must be re-earned each year and does not permanently increase base salary. This has been a growing trend for the past few years, according to Hewitt Associates spokesman Joe Micucci, who notes that 80 percent of companies have some type of variable pay plan in place.

"Variable pay will continue to be a driver," says Micucci, acknowledging that the economy is still a prominent factor in the situation these days. "After a company has gone through its share of layoffs, those people [that are left] need to be motivated."

To address the variable pay issue among distributors, we asked readers about their incentive compensation. Almost all respondents (96 percent) reported receiving some type of incentive pay in their yearly compensation packages. How that pay is structured varies, of course, but it is mainly given in the form of commissions and bonuses.

The Cross-Industry Compensation Report, compiled every two years by Boulder, Colo.-based Profit Planning Group, addresses this issue, as well. This year, it showed a push to increase pay on the incentive side rather than on base salary, according to PPG president Dr. Al Bates. The PPG report was completed in March 2002 and is based on 2001 earnings data from distributors across a range of industry segments.

"That's what one expects in a tougher time," Bates says of the desire to increase incentive pay. "You're shifting the burden a bit."

The PPG study showed that overall pay increases are slowing, as well. However, Bates notes that this is especially true for top managers.

"Basically, the higher up the management team you went, the less of an increase you saw," he said of his company's research.

Our Compensation Survey was e-mailed to a portion of Industrial Distribution readers in August. The survey asked for information on their total yearly earnings in 2001, including bonuses and commissions. To track changes in compensation levels, we asked for earnings information going back two more years, as well as for anticipated, year-end 2002 figures.

Our results are based on 378 completed surveys returned to ID by late August. The survey was conducted by Reed Research Group, a division of Industrial Distribution's publisher Reed Business Information. All figures reported here reflect the survey's median score, which represents the midpoint of the data.

Eighteen percent of respondents to this year's survey identified themselves as outside salespeople; another 18 percent as CEOs or presidents; 15 percent as vice presidents of sales or sales managers; 13 percent as branch managers; and 10 percent as inside salespeople. The remainder filled a range of positions, including treasurer, buyer, IT director, operations manager, marketing director and others.

A look at the overall results shows that: The average distribution professional is 44 years old and works for a general-line distribution company with about $14 million in annual sales. He (91 percent of respondents were men) has a bachelor's degree, 17 years' industry experience and has worked for two distributorships in his career. He will earn $70,000 this year.

For the first time, we asked readers how much they received last year in bonus and commission pay. Twenty-eight percent of respondents said a portion of their yearly compensation comes from commissions (this includes top executives, inside and outside salespeople, branch managers and some other positions). The median commission in 2001 was $17,500. Similarly, 43 percent of respondents said their total 2001 compensation included a bonus. The median bonus received last year was $10,000.

For a closer look, we evaluated compensation levels by job title. We found that CEOs/presidents earned a median $150,000 in 2001, sales managers earned $83,000, outside salespeople earned $55,000, branch managers earned $68,000 and inside salespeople earned a median $38,000.

We compared those figures to the results of the Profit Planning Group's Cross-Industry Compensation Report which shows that: CEOs/presidents typically earned $140,000; sales managers earned $74,000; and inside salespeople earned $32,000. The Cross-Industry Compensation Report surveys distributorships specializing in a range of product categories — such as contractor supplies, welding equipment, fasteners and building materials to name a few — and whose annual sales range from less than $1 million to over $1 billion.

This year, we also took a closer look at the CEO/president category. We've already established that they earned a median $150,000 last year. What's more, they report that their earnings will remain flat this year. The average industry CEO or president is 52 years old, has a bachelor's degree, 26 years' experience in the industry and has worked for two different distribution companies in his career. Most of the CEOs/presidents responding to our survey were men (98 percent).

In an industry where many top leaders continue to function as salespeople (especially at small companies) we wanted to find out what their commission pay looked like. Most CEOs and presidents, however, reported receiving no commission payments (91 percent) last year. In contrast, 47 percent received bonuses in 2001. The median bonus pay for CEOs/presidents was $72,500.

Pay varies depending on the region of the country in which you work. This year, we found that workers in the Western United States earned the most — a median $81,000 last year. Employees in the South and East were next, at a median $71,000 and $70,000 respectively. Employees in the Midwest earned the least, a median $62,000. Anticipated year-end 2002 expectations run pretty much the same. Workers in the West expect to bring in a median $85,000 this year, while those in the South and East expect to earn $75,000 and those in the Midwest expect to earn a median $60,000.

We also asked readers about their total household income. Those in the East and West came out on top — at $100,000 and $97,000 respectively. Workers in the South reported a median $89,000 in total household income last year, while those in the Midwest reported a median of $83,000.

Looking at bonus pay, it's the Southern workers that came out on top. The median bonus pay for workers in the South last year was $13,750. Next in line were workers in the West, at a median $12,000 in bonus pay. In the Midwest, the median bonus compensation was $8,000 and in the East, a median $6,750.

Hewitt Associates identified four main types of variable pay plans: business incentives, which award employees for a combination of financial and operational measures for company, business unit, department, plant and/or individual performance; special recognition, which acknowledges outstanding individual or group achievements with small cash awards or merchandise; individual performance, which rewards employees based on specific performance criteria; and stock ownership, which re-wards stock to professionals who meet specific goals.

In similar fashion, we asked re-spondents to tell us how their incentive compensation is determined by their employers. Twenty-four percent said their incentive pay is based on their company or branch profitability; 23 percent said individual profitability; 19 percent said company or branch sales/volume performance; and 13 percent said individual sales/volume performance. The remainder said their incentive pay is based on other factors, or a combination of several factors.

While incentive and variable pay plans are growing in popularity, it can be difficult to reward employees at all levels in that way, says Bates.

"It's awfully hard to put anyone beyond the salesforce on an incentive plan," he says. "It's very difficult, historically at least, to drive that mentality down to people who aren't in control of their own destiny."

When it comes to benefits, the majority of respondents receive vacation pay, health insurance, a 401K plan, sick time, dental insurance and short- and long-term disability. Fifty percent said they receive in-house training as a benefit, while 46 percent work for companies with tuition reimbursement programs and 27 percent get maternity or paternity leave.

While we didn't see much variation in benefits this year, this is where the PPG study saw the most dramatic change. Bates says he found that traditional health insurance programs are being phased out at most distribution companies in favor of alternatives such as HMOs (health maintenance organizations) and PPOs (preferred provider organizations). This year, he says there was a notable move towards PPOs, which are similar to but offer more flexibility than HMOs. In addition, the PPG study found that many employers are increasing employee co-payments and taking other cost-cutting measures as health insurance expenses rise.

"It's not that people are trying to take anything away from employees," Bates explains. "It's just getting more expensive."

A satisfied bunch

Despite the uncertain economy, slowing pay raises and rising benefits costs, our survey shows that distribution employees are a reasonably satisfied group. We asked readers to tell us how rewarding their job is by choosing from five options: very rewarding, rewarding, somewhat rewarding, somewhat unrewarding, and very unrewarding. Sixty percent said rewarding or very rewarding; just 10 percent said somewhat unrewarding or very unrewarding. We also asked readers to tell us how well they think their income compares to other professionals in the industry having the same job responsibilities. Twenty percent said they think their income is significantly lower, 28 percent said slightly lower, 31 percent said about the same, 17 percent said slightly higher, and four percent said significantly higher.

In another attempt to gauge earnings satisfaction, we asked readers how well compensated they think they are in terms of pay and benefits. We gave them four choices: very well compensated, well compensated, fairly compensated, and under compensated. The overall average response was fairly compensated.

With the cost-cutting measures taking place at distributorships small and large, it may seem surprising that those statistics don't border more on the negative side. However, it may just be that, in this economic environment, employees are happy to still be on the payroll.

"People that are working understand that it's a tough world out there and are glad to have a job," Bates suggests.