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December 19, 2008

HR Fact Friday: Employers Cut Pay Raises in 2009

Filed under: Salaries & Pay — Tags: , , , , 8:41 am

The Wall Street Journal reported on 12/16/08 that employers have done a sudden about face in regard to projected pay raises for 2009.  Many who as recently as October said they were barely modifying their salary budgets in 09, have now changed their tune bringing projected annual pay raises for some workers to a 30 year low.

Overall, workers are now projected to receive average annual merit increases of 3% in 09 according to a new survey by Hewitt Associates. When polled just 2 months ago, employers said they had already lowered their budgets to 3.6% from 3.8% in July.

Pay for some workers may go as low as 2.5%, a clear signal that companies are concerned about managing their fixed costs during such a challenging worldwide business climate.

Hewitt competitor, Watson Wyatt Worldwide found similar results in a yet to be released report surveying 119 large U.S. employers representing 1.6 million full-time workers. Their report states that 61% of employers recently made 2009 salary budget alterations bringing their average projected workers merit increase to 2.3%.

The 3% mark has been the unwritten psychological threshold that companies have not been willing to dip below for pay raises for solid performing employees. Not any more.

There is a slight gap in favor of blue collar workers over white collar workers. The average annual merit increase for blue collar workers is projected to be 2.6% with 2.5% for white collar workers, versus 2.2% for executives.

This data represents the smallest employee income growth data since Hewitt began tracking the data in 1976. It”s also below the 3.1% level employers reported offering in 2001 folowing the Sept. 11 attacks.

Other data includes: Workers in education and financial services are projected to receive annual merit increases of 2.3% and 2.9% respectively. This is down from 3.5% and 3.9% in July.

Workers in the construction, engineering and pharmaceutical industries are projected to see above average salary increases — as high as 4.5% in construction and engineering. Research and development professionals can also expect increases of about 4.0%.

Bonus pools have remained intact because these funds are tied to performance and perhaps the only mechanism left to send a message to high performers.

Source: WSJ, 12/16/08, Pay Raises Seen Taking a Hit by Sarah E. Needleman.