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Pay rises slowly but tops inflation

 
Published July 6, 2003|Updated Sept. 1, 2005

Workers hoping for a raise in the near future shouldn't have great expectations: Pay increases are coming in at the lowest level in at least a decade.

U.S. salaried workers will receive an average 3.5 percent pay raise for 2003, rather than the 4 percent previously projected by employers, and they can expect about the same next year, according to data from the Conference Board, a nonprofit economic research group.

"Companies are proceeding very cautiously on the subject of cost control," said Charles Peck, a compensation specialist at the Conference Board. "Supposedly there is a recovery going on, and the profits have bounced back for some industries, but I think they're being very, very cautious."

This is the first time in 10 years that median salary-budget increases have moved significantly below 4 percent, according to the survey of 531 companies.

A different poll of 3,100 companies also pegged this year's average pay hike at 3.5 percent, but ranked it as the lowest in three decades, according to the 30th annual survey by WorldatWork, a nonprofit professional association.

Yet, despite the declines, workers are actually gaining ground. The average increase is running almost a full percentage point ahead of the projected 2.6 percent inflation rate for 2003. A "pay increase isn't going to disappear at the supermarket meat counter," Peck said.

Compare that to the late 1970s when inflation ran about 12 percent and raises averaged 10 percent.

"Even though that seems like (a big raise), it was being eaten out by the cost of living," Peck said.

Of course, that won't provide much cheer to those not getting any raise this year _ an increasing number of workers, according to WorldatWork.

Eighty-three percent of employees will get raises this year, down from 85 percent in 2002 and 94 percent in 2001, according to the WorldatWork survey.

Also, the 3.5 percent salary increase is just an average, meaning some workers will get more and others less. In these days of shrinking corporate budgets, employees most likely to gain a pay raise are those performing well.

"Companies are trying to do more with less," said Sue Holloway, project manager at WorldatWork. Thus, they "are focusing on their top performers and distributing that money based on performance."

Peck agreed: "When you're dealing with salaried people, most of these increases are a merit increase. It relates to the performance of the individual. With a 3.5 percent (salary increase) budget, theoretically they could give anywhere from a zero increase to a 7 percent increase. It just has to average out to 3.5 percent." The likelihood of a pay raise also depends on the industry: Insurance companies reported a 4 percent salary-increase budget for 2003 for most employees, and the industry projects similar salary hikes for 2004, according to the Conference Board survey.

But exempt workers in the insurance industry, generally professional and managerial positions, are seeing a slight dropoff this year from projections, to 3.8 percent, while nonexempt workers, such as clerical staff, and executive positions are holding steady at 4 percent.

The only other workers seeing an average raise of more than 3.5 percent are executives in the utilities industry: Their raises this year will average 3.9 percent but are projected to drop to 3.5 percent next year.