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Studies: Pay Raises Will Remain Modest
Recent studies predict only slight increases in pay for many employees in 2006 and 2007. Many companies will turn to other forms of compensation to reward top employees, experts say.
According to recent studies, the majority of U.S. employees will receive some sort of pay raise in 2006 and 2007. Significant increases in salary are unlikely for most workers, however, as organizations will rely on other means to compensate top performers. According to a recent survey of nearly 2,800 HR professionals, conducted by WorldatWork, a Scottsdale, Ariz.-based not-for-profit professional organization focused on HR disciplines, more than 90 percent of employees are expected to receive an increase in base pay. But most employees should not anticipate receiving substantially larger paychecks. For 2006, the WorldatWork poll projects total base salary budget increases across all sectors to average 3.8 percent. Projected increases for 2007 average 3.9 percent. Findings from a recent Mercer Human Resource Consulting study revealed similar figures. According to Mercer's 2006/2007 U.S. Compensation Planning Survey, which gathered responses from more than 950 employers and reflected pay practices for nearly 12 million workers, U.S. companies plan to grant average pay increases of 3.7 percent in 2006, an increase of only .1 percent over 2005. Pay increases are projected to remain at 3.7 percent next year as well, according to the survey. While the U.S. economy has experienced a resurgence, the resulting increase in job creation "hasn't been dramatic," says Steven Gross, global leader of Mercer's rewards consulting practice. Despite an increasingly strenghthening economy, the supply and demand for labor in most industries hasn't seen a considerable spike, he says. Consequently, "companies don't feel pressure to [offer] large salaries," says Gross. A number of variables -- tax increases, fuel prices, home prices, government spending, inflation, cost of living -- are perennial indicators of what average salary increases will be, says E. James Brennan, senior associate at ERI Economic Institute, a Redmond, Wash.-based provider of assessments on salary, relocation, cost-of-living and executive compensation. But, despite factors such as rising fuel prices and increasing living expenses, recent ERI data predicted an average salary increase similar to those in the aforementioned studies. According to the Institute's projections, based on average salary increases in years past, some positions -- protective-service workers, public-relations managers, purchasing managers, business-operations specialists, psychiatrists and chief executives -- are projected to see above-average salary hikes in 2007. Overall, however, the ERI data -- culled from a wide range of industries -- project a 3.9 percent average increase for the "general worker," a 4.1 percent raise for "professionals" and a jump of 4.3 percent for "management-level" employees in the coming year. It remains difficult, Gross says, to raise salaries sufficiently to keep pace as cost-of-living expenses climb higher unexpectedly. Historically, "salary increases have averaged generally 2 percent above inflation on a one-year basis," he says. "This year's inflation rate drives next year's salary increase. The difference in the late '90s is that [employees] were getting up to 2 percent above [the inflation rate]. Now it's one-half percent at best. "A company may be sympathetic [to its employees' predicament]," he says, "but unless it can increase prices or increase productivity, it can't provide extra money" in the form of higher salaries. Still, while a majority of employees may not see a large bump in their wages anytime soon, more organizations will seek other ways to reward worthy employees who "create value," Gross says. Gross predicts "one-time" forms of compensation for significant events or achievements-- cash awards, signing bonuses and rewards for reaching project goals -- will become more prevalent, in lieu of sizable pay increases. And, as the labor market figures continue to slowly but surely improve, it will become increasingly vital for organizations to explore other ways to compensate top performers, Brennan says, or else watch turnover rates "skyrocket, as people swap up for more pay for [essentially performing] the same job at a relatively-higher paying employer."
August 29, 2006 Copyright 2006© LRP Publications |
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