Posted on: Sunday, June 29, 2003

Average pay raise in '03 dips to 3.5%

By Andrea Coombes
CBS MarketWatch

SAN FRANCISCO — Workers hoping for raises soon shouldn't have great expectations: Pay increases are coming in at the lowest level in at least a decade.

U.S. salaried workers will receive an average 3.5 percent pay hike for 2003, rather than the 4 percent previously projected by employers — and they can expect about the same next year, according to data from The Conference Board, a nonprofit economic research group.

"Companies are proceeding very cautiously on the subject of cost control," said Charles Peck, a compensation specialist at The Conference Board. "Supposedly there is a recovery going on, and the profits have bounced back for some industries, but I think they're being very, very cautious."

This is the first time in 10 years that median salary-budget increases have moved significantly below 4 percent, according to the survey of 531 companies.

A different poll of 3,100 companies also pegged this year's average pay hike at 3.5 percent, but ranked it as the lowest in three decades, according to the 30th annual survey by WorldatWork, a nonprofit professional association.

Yet, despite the declines, workers are actually gaining ground. The average increase is running almost a full percentage point ahead of the projected 2.6 percent inflation rate for 2003. A "pay increase isn't going to disappear at the supermarket meat counter," Peck said.

Compare that to the late 1970s when inflation ran about 12 percent and raises averaged only 10 percent.

"Even though that seems like (a big raise), it was being eaten out by the cost of living," Peck said.

Of course, that won't provide much cheer to those not getting any raise this year — an increasing number of workers, according to WorldatWork.

Eighty-three percent of employees will receive pay increases this year, down from 85 percent in 2002 and 94 percent in 2001, according to the WorldatWork survey.

Also, the 3.5 percent salary increase is just an average, meaning some workers will get more and others less. In these days of shrinking corporate budgets, employees most likely to gain a pay raise are those performing well.

"Companies are trying to do more with less," said Sue Holloway, project manager at WorldatWork. Thus, they "are focusing on their top performers and distributing that money based on performance."