U.S. workers will get small raises, but choice few will see fat bonuses

Workers hoping for big raises next year are in for disappointment. Employers will hold the line on pay increases, following a trend of reining in compensation costs to stay competitive.

Employers plan an overall salary budget increase of 3.9 percent next year, says an August survey by WorldatWork, an association of human resource professionals that conducts one of the most comprehensive salary budget surveys. That follows increases of 3.9 percent in 2007.

The pay raises modestly outpace consumer inflation, 2.7 percent for the 12 months ending in June.

The restrained pay increase poses a challenge for employers who must find other ways to retain and recruit employees, and it's a shift from the early to mid-1990s when raises were about 5 percent a year.

"For people who are doing adjustable-rate mortgages and stretched-out credit cards, this is not good news," says Anne Ruddy, president of WorldatWork. "And on top of it, employees' health care costs have also gone up. Companies are responding to globalization and shareholder pressure."

Other data support the somewhat gloomy outlook. Employees should see flat to modest growth in pay increases, say the preliminary findings of a report that will be released later this month by Hewitt Associates, a benefits consulting firm in Lincolnshire, Neb. Companies gave employees about a 3.7 percent average pay increase in 2007, with 3.8 percent projected for 2008.

Employers are being more generous with bonuses for high performers.

In the 1990s, employers budgeted about 5 percent of their payroll for bonuses.

For 2008, companies anticipate devoting nearly 12 percent of payroll to bonuses, using pay as a way to retain and reward valued employees.

"The bonuses surprised us," says Ken Abosch, North American compensation practice leader at Hewitt. "With base salaries flat, companies have turned to bonuses to reinforce employee performance. It's the biggest turnaround in compensation practices in 10 years."

Who's getting heftier bonuses? Employees who set specific work goals with their managers, ask for feedback from superiors and document their contributions, reflecting a growing need for employees to market themselves to their employers, Abosch says.

Source: USA Today
August 13, 2007

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