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The Honolulu Advertiser
Posted on: Monday, July 25, 2005

Don't bet on getting a pay raise in 2006

By Barbara Rose
Chicago Tribune

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CHICAGO — Don't expect a much fatter paycheck next year unless you do something exceptional.

That's the bottom line from a survey released last week showing that despite a growing economy and improving job market, employers continue to hold the lid on salary increases.

Instead, they are relying more on bonuses and other cash incentives to keep key employees from jumping ship, according to Mercer Human Resource Consulting.

Mercer's survey found that U.S. employers plan to award average pay increases of 3.6 percent in 2006 — unchanged from 2005, when the increase outpaced inflation by less than 1 percent.

Mercer surveyed 1,350 large to midsized employers about compensation plans covering 13 million nonunion employees.

"There's still a strong pressure not to raise fixed costs," said Steven Gross, who heads Mercer's U.S. employee rewards business. "There's much more going on in variable pay now. It's as if employers are saying, 'We are willing to pay premiums, but not in fixed wages.' "

Mercer's survey found increased use of "spot" cash awards for exceptional performance, as well as signing and retention bonuses. At the same time, changes in accounting rules have sharply reduced the number of companies offering broad-based stock option programs.

Companies such as McDonald's Corp. have replaced the value of discontinued or reduced stock option programs with higher cash incentives.

"It actually is a more compelling compensation package because it's based on results they can control," said Richard Floersch, human resources executive vice president. "At the crew level," he added, "we're seeing more spot bonuses based on the results of the restaurants."

Cummins Inc., the Indiana-based maker of diesel truck engines, also relies heavily on incentive pay for all employees, spokesman Mark Land said.

"This year, we paid out near the top of our bonus scale" because of improved results, he said. "Three or four years ago, very few people were getting bonuses. It has definitely loosened up."

Most employees' salaries, meanwhile, do not reflect the economy's rebound.

Mercer's surveys indicate a sharp slowdown in real wage growth since 2003. For most of the preceding 15 years, pay increases outpaced inflation by 1 percent to 1.5 percent, Gross said.

"There was a nice healthy spread for workers," he said. "Now the gap is at an historically low basis."

The U.S. Bureau of Labor Statistics paints an even bleaker picture. In the second quarter of 2005, median weekly earnings for full-time workers were 0.6 percent higher than a year earlier, while the consumer price index for urban consumers rose 3 percent in the same period, according to a BLS report.