Employers slash pay-raise projections in response to worsening economy

The Baltimore Sun

Faced with worsening economic conditions, employers are planning to dole out even smaller salary increases this year, according to a new survey. And given the climate, some workers might not see raises at all.

HR consulting firm Hewitt Associates found that workers could see an average base pay raise of 3 percent, which is less than the 3.8 percent employers had projected in July.

"It's not a pretty picture out there," says Ken Abosch, Hewitt's North American practice leader for compensation consulting. "We're seeing companies trying to respond to severe economic pressure and global competition, and all of that is unfortunately resulting in companies rethinking their approach to compensation expenses."

Last month, Hewitt updated its earlier survey by asking 640 companies, representing almost 13.5 million U.S. workers, whether they plan to make changes to their 2009 compensation spending because of the recession.

Half of the respondents, representing 7 million workers, said they slashed their pay-raise projections, while 25 percent indicated they are considering doing so.

Those employers will offer salary increases below 3 percent on average, the smallest pace of growth since Hewitt began tracking compensation data in 1976.

For instance, pay increases for executives will drop to 2.2 percent, down from 3.8 percent projected in July. Salaried exempt employees, which include managers, will see an average increase of 2.5 percent versus 3.8 percent.

Meanwhile, salaried nonexempt workers will see their increase decline to 2.6 percent from 3.7 percent projected in July.

"In 2001, the last major recession, we saw that there's been this kind of psychological barrier of 3 percent, below which companies have not been willing to go," Abosch said. "What we're seeing today is drastically lower than 3 percent. It's a pretty severe response."

And depending on your industry, you could see even a smaller pay raise - or none at all. Autoworkers will see an average salary increase of 1.4 percent.

But workers in certain industries, including construction/engineering, research and development, and pharmaceutical, will receive raises above 3 percent, according to the survey.

One bright spot is that most employers are sticking with projections for merit pay raises this year. Spending on merit pay dropped about 1 percentage point or less for all employees, according to the survey.

"This form of pay has the greatest linkage to economic volatility; you're going to pay bonuses out if you have performance," Abosch says. "The fact that you're seeing only a 1 [percentage point] decrease seems to suggest there is some optimism on the part of companies on what performance will look like this year."

Are you seeing your pay raises shrink amid the recession?

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