Human Capital & Careers

Survey: Raises Small in 2003, 2004

Third consecutive year that salary hikes will come in under 4 percent.
Stephen TaubAugust 5, 2003

It looks like it’s going to be a buyer’s market for labor a lot longer than many economists had anticipated.

Indeed, the Labor Department reported late last week that 44,000 jobs were cut in July, the sixth straight month that jobs were lost from the economy.

In addition, the workforce declined by 556,000, as 470,000 unemployed people threw in the towel and stopped looking for work.

Given the lack of hiring, it’s not overly surprising that pay increases will probably average just 3.3 percent in 2003, according to a recent survey from Mercer Human Resource Consulting. The survey, which includes responses from more than 1,700 U.S. employers and reflects the pay practices of nearly 15 million workers, predicts salaries will go up a mere 3.5 percent in 2004.

If so, that would mark the third consecutive year that annual employee pay increases have been less than 4 percent.

Bear in mind that during the eight-year period prior to 2002, annual pay increases averaged 4.1 percent to 4.4 percent, before dipping to 3.8 percent in 2002.

The Mercer forecasts include data from employers who are planning to freeze salaries for at least part of their workers. Take those companies out of the mix, says Mercer, and pay increases will likely average 3.6 percent for both 2003 and 2004.

As for 2004 pay increases: not surprisingly, executives are slated to receive the largest increases next year (3.7 percent), while nonunion hourly employees should expect to receive the smallest raises (3.4 percent).

Although salary hikes are still anemic, fewer companies are forgoing pay hikes altogether. The percentage of companies that instituted pay freezes in 2003 dropped to 12 percent, down from 16 percent in 2002. And very few employers indicated that they will freeze employee pay in 2004, according to Mercer.

For executives, salary freezes were most common for the computer software/services industry (28 percent froze executive pay in 2003) and real estate (25 percent).

At the other end of the spectrum, executives in research and development and pharmaceutical/biotechnology firms were unaffected by salary freezes.

Other results from Mercer’s study:

  • For the fifth straight year, non-monetary recognition awards were the most popular emerging award program, with 72 percent of respondents offering them — and another 11 percent of the respondents considering them.
  • Spot cash awards were the second most popular emerging program, with 53 percent of survey participants saying they use them, while another 8 percent said they are considering implementing such awards.
  • Individual non-management incentives are currently offered by 38 percent of the respondents, with another 15 percent considering those incentives.
  • Employers are paying more attention to employee careers: 22 percent of respondents currently have formal career planning, and another 20 percent are considering implementing similar employee retention programs.
  • Competency-based performance management is currently used by 34 percent of the respondents, but another 18 percent are considering this approach.

“Such trends reflect the fact that employers today are placing a greater emphasis on building talent from within versus buying talent on the market,” says Steven Gross, a compensation consulting leader at Mercer. “They want to spend their time and resources to develop the employees who already have demonstrated commitment to their companies.”

(Editor’s note: Next month will publish its annual CFO compensation survey, produced in conjunction with Mercer Human Resource Consulting. If you’d like to be notified when the survey has been published, sign up for email alerts on compensation.)