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Some budgets for pay raises in 2002 will be smaller than planned - HR Update News That Works - Brief Article

HR Magazine, Jan, 2002 by Bill Leonard

In response to the economy's continuing decline, about one-fifth of U.S. employers are planning to adjust their 2002 pay increase budgets downward, according to a new survey from William M. Mercer Inc., an HR management consulting firm headquartered in New York.

The national survey of more than 340 medium-sized and large companies, conducted in early October, asked employers if their 2002 base pay increase budgets had changed from what the organizations initially reported last April as part of Mercer's 2001/2002 U.S. Compensation Planning Survey. Nearly two-thirds--65 percent--said their budgets had not changed over the past six months, 28 percent reported they had adjusted their pay increase budgets, and 7 percent said they were not yet sure if they would change their plans. (Two percent of the total respondents don't plan to raise base pay during 2002.)

Of the employers making a change, about " one-third have upped their pay increase budgets since April. The remaining two-thirds--or 19 percent of all the respondents--have cut their pay-increase budgets.

According to the findings, employers making cuts generally are shaving about one to two percentage points from their original pay-increase budgets. Last April, those surveyed employers reported 2002 average pay-increase budgets of 4.4 percent to 4.6 percent. When surveyed again in October, the same employers said they now expect to grant average pay increases of 2.9 percent to 3.1 percent this year.

After the Sept. 11 terrorist attacks, Andersen Consulting in Chicago also surveyed U.S. companies on their plans for salary increases and found that few changes are in the works. Most companies seem to be taking a wait-and-see approach to the economy. According to the Andersen research, employers are planning to increase wages 3.8 percent to 4 percent in 2002, a range that is only a few tenths of a percentage point below actual merit increases in 2001.

"Companies, for the most part, are staying the course with their compensation programs for now," says Michael S. Kesner of Andersen's human capital practice. "We found that companies are proceeding with 'normal' merit increases for two reasons: One is the prospect of low or no bonuses, and the other is the fear of salaries falling below the market."

For more information on both studies, see the online version of HR Update in the members only content section at www.shrm.org/hrmagazine.>