Don't expect a much fatter paycheck next year unless you do something exceptional. That's the bottom line from a survey released recently...
CHICAGO — Don’t expect a much fatter paycheck next year unless you do something exceptional.
That’s the bottom line from a survey released recently showing that despite a growing economy and improving job market, employers continue to hold the lid on salary increases.
Instead, they are relying more on bonuses and other cash incentives to keep key employees from jumping ship, according to Mercer Human Resource Consulting.
Mercer’s survey found that U.S. employers plan to award average pay increases of 3.6 percent in 2006 — unchanged from 2005, when the increase outpaced inflation by less than 1 percent.
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Mercer surveyed 1,350 large to midsized employers about compensation plans covering 13 million nonunion employees.
“There’s still a strong pressure not to raise fixed costs,” said Steven Gross, who heads Mercer’s U.S. employee rewards business.
“There’s much more going on in variable pay now. It’s as if employers are saying, ‘We are willing to pay premiums, but not in fixed wages.’ “
Mercer’s survey found increased use of “spot” cash awards for exceptional performance, as well as signing and retention bonuses.
At the same time, changes in accounting rules have sharply reduced the number of companies offering broad-based stock-option programs.
Companies such as McDonald’s have replaced the value of discontinued or reduced stock-option programs with higher cash incentives.
“It actually is a more compelling compensation package because it’s based on results they can control,” said Richard Floersch, human-resources executive vice president.
Cummins Inc., the Indiana-based maker of diesel truck engines, also relies heavily on incentive pay for all employees, spokesman Mark Land said.
“This year, we paid out near the top of our bonus scale” because of improved results, he said. “It has definitely loosened up.”
Most employees’ salaries, meanwhile, do not reflect the economy’s rebound.
Mercer’s surveys indicate a sharp slowdown in real wage growth since 2003. For most of the preceding 15 years, pay increases outpaced inflation by 1 percent to 1.5 percent, Gross said.
“There was a nice healthy spread for workers,” he said. “Now the gap is at an historically low basis.”
The U.S. Bureau of Labor Statistics paints an even bleaker picture.
In the second quarter of 2005, median weekly earnings for full-time workers were 0.6 percent higher than a year earlier, while the consumer price index for urban consumers rose 3.0 percent in the same period, according to a BLS report.
Elise Gould, an economist at the Economic Policy Institute, said real wages for most workers have not increased since the recession ended in November 2001.
“You would expect real wages to be improving because we’re in a period of recovery and productivity growth is so high,” she said. “Part of the reason is there is still a fair amount of slack in the labor market.”