Salaries staying afloat

Associated Press

NEW YORK — The slowdown in the economy hasn't yet eroded the steady pay gains enjoyed by U.S. workers, according to two new reports, but more employers are looking at ways to trim salary and wage increases in the months ahead.

Those gains — the sum of all base pay, overtime, bonuses and other wages — are down slightly from the 7.8 percent overall increase of a year ago, according to calculations by Economy .com, a West Chester, Pa. forecasting firm.

Employers say they plan individual pay increases this year and next averaging just over 4 percent, reports William M. Mercer Inc., a human resources consultant that surveyed 1,500 companies about such practices. The firms were surveyed early this year.

But many firms are growing wary of an extended slowdown and are considering ways to rein in salaries, Mercer's study found.

"As the year progresses, we find that more of them are thinking about alternative actions in case third and fourth quarter performance does not meet expectations," said Steven Gross, who heads Mercer's compensation consulting practice.

Many major employers have used layoffs to cut costs, but have been reluctant to penalize remaining workers, analysts said.

But pressed to cut spending, some companies are beginning to stretch out the time between raises, scale them back or give workers one-time lump sums instead of raises to avoid locking in costs, Gross said.

Many companies already pushed their merit raises from January to April, without actually cutting the amounts of those raises, said Janet Fuersich, a compensation consultant with Towers Perrin.

While most companies are sticking by budgets that raise total merit pay by 4.5 percent for rank-and-file workers, those will not be doled out as evenly as in the past. Instead, profit pressures will mean bigger raises for stronger performers, she said.

So far, however, many paychecks do not reflect the corporate frugality touched off by the downturn.

Government figures show that the total wage and salary pool increased across the country for the year that ended in March. The increases were largest in the Rocky Mountain states, lead by Colorado, where paychecks averaged 13.3 percent gains in the first quarter of 2001 compared with the same time a year ago.

The smallest gains came in the Great Lakes states, where increases in pay averaged about 4 percent.

The question is how long those gains will hold, analysts said.

"Really, until early this year, we were still working and living in an environment of tight labor markets ... so companies were willing to keep raises constant and do what they could to keep their work forces intact," said Steven Cochrane, senior economist at Economy.com. "I think the situation is clearly going to change in the quarters going forward."

The companies surveyed by Mercer said they are hiking pay by 4.4 percent this year with plans for additional raises of 4.3 percent in 2002. Both figures are just above the 4.2 percent increases companies reported in 2000 and each of the preceding three years, the consulting firm said.

Raises this year are being spread relatively evenly among workers, with executives getting 4.5 percent increases, 4.3 percent for technical and professional workers and 4.1 percent for nonunion hourly workers, companies surveyed by Mercer reported.

But without a great improvement in the economy as the year goes forward, many companies may revisit those plans, Gross said.

"People are budgeting in the summer, its refined in the fall and confirmed in the first quarter," he said. Top executives "may allow somebody to budget 4 percent (raises), but I know in my heart of hearts, if business doesn't pick up I'm going to slash their budget."