Even as the economy recovers, employers remain cautious and are increasing overall wages this year by only 3.4%–consistent with the record low of 2003–for salaried workers who aren‚t required to receive overtime pay, according to a study of 1,185 companies by Hewitt Associates, a global outsourcing firm in Lincolnshire, Ill.
Hourly workers who don‚t belong to unions and salaried employees eligible for overtime compensation are both seeing about a 3.3% raise this year, while executives are benefiting from a slightly higher boost of 3.7%. About 3% of companies currently have a salary freeze in place.
"The economy is recovering at a lower rate than some organizations had hoped, but that‚s probably not the key focus of what‚s happening here," says Ken Abosch, a business leader at Hewitt. "Companies still feel tremendous pressure from global competition, and they need to keep costs as low as possible."
To be sure, companies‚ compensation budgets generally aren‚t shrinking. Rather, employers are just shifting where they allocate dollars–increasingly rewarding high-performing workers instead of giving blanket pay raises to a broader base of employees.
About 78% of the companies studied by Hewitt have at least one broad-based variable-pay program–tying individual, department or company performance to stock or cash awards–a significant increase from the 59% of companies that had this in 1995. These perks typically have to be re-earned each year and don‚t permanently boost employees‚ base salary.
Overall, employee pay raises will be slightly more favorable in 2005. Salaried workers who aren‚t subject to overtime can expect a 3.6% pay raise, while non-union hourly workers and those who do get overtime should get a 3.5% increase. Executive pay raises are projected to be 3.8% next year, according to Hewitt.
Workers in Washington D.C., Los Angeles, Boston and Dallas will reap a greater level of financial rewards because of high-paying industries and competition for employees in these regions. Yet, in New York, Atlanta and Chicago, expect wage increases in 2005 that are lower than the national average. The surfeit of potential employees in the Big Apple, for instance, "brings the cost of labor down, so organizations have to pay less," says Abosch.