Pay Raises Are the Smallest In Decades, Surveys Show

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Recession-starved employee salaries have scarcely grown this year, and early predictions for 2010 aren’t looking much better. Two surveys to be released Tuesday found employers have increased salaries this year by the smallest percentage in decades. Human-resource consultants Watson Wyatt Worldwide Inc. and Hay Group estimate that median pay raises for 2009 ranged between 2% and 3%. The U.S. Labor Department says pay for the average worker increased 2.2% in the year ended March 31, down from 3.2% in the year-earlier 12-month period.

For next year, the firms are projecting slightly bigger raises of 3%. That’s the smallest forecast increase in the 29 years Hay Group has done its survey. Watson Wyatt says its prediction is among its smallest ever. The Watson Wyatt and Hay Group surveys try to cover a broad swath of workers, including both salaried and hourly employees in most industries.

The reasons are clear: In a recession that has eliminated 6.5 million jobs since the end of 2007, millions of workers have suffered pay cuts or have been forced to take time off without pay. Economists expect the U.S. economy to resume growing later this year, but the labor market typically recovers more slowly.

“It’s a pretty bleak picture for employees,” says Kenan Abosch, compensation practice leader for Hewitt Associates, another consulting firm. Hewitt’s survey, to be released next month, indicates similar trends—a record low increase for 2009 and a slight bump for 2010.

Analysts say the findings demonstrate the depth and volatility of the recession. A year ago, the consulting firms predicted average workers would see pay increases of 3.5% to 4% this year. But the new surveys show that raises fell far short of that.

Toward the end of last year, companies went into “panic mode to try to throw as much cost overboard as possible,” Mr. Abosch says. He adds that the disparity between the projection and the actual raises was the largest in the 33 years Hewitt has tracked the numbers.

David Wise, senior consultant at Hay Group, says the numbers demonstrate that “a severe enough economic downturn will force companies to do things they never thought they would do.”

Still, Mr. Wise says the small size of the projected raises for next year likely won’t upset workers as much as it would have in the past. “Today, people are more focused on job security than they are on a pay increase,” he says. “If they can keep a job, they’re already ahead of the game.”

Laura Sejen, global head of strategic rewards consulting at Watson Wyatt, said workers should be somewhat encouraged by the results. “Three percent isn’t that skinny,” she says, adding that many employers are poised to restore wages that had been cut and to resume granting raises.

Alison Avalos, compensation practice leader and research manager for WorldatWork, a nonprofit human-resources association, says many employers will feel they must raise salaries despite the slack labor market in order to attract and retain key employees. Stingy organizations are likely to lose superior workers, she says.

WorldatWork earlier this month predicted companies will increase salary budgets by 2.8% next year.

The analysts say the averages mask considerable variation in how employers treat their best and worst employees. This year, Watson Wyatt estimates that top employees—those who “far exceeded expectations”—received raises averaging 4%, while lower-ranked employees got only 0.2% increases.

Such pay disparities have been growing in recent years as companies compete to retain top talent. Ms. Avalos says the disparity helps businesses get more “bang for their buck.”

The smart companies will be the ones who effectively distribute pay, Mr. Wise says. “You can’t spread the pay evenly like it’s peanut butter,” he says.

On Guard and Grieving in Jakarta

Associated Press

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