Salary increases seen being trimmed in '04.

The new year didn't bring any good news for employees at many U.S. companies. With the job-creation engine only sputtering to life, and 2003 business results concluded, more than 40 percent of U.S. employers are scaling back their 2004 pay-increase budgets for at least some portion of their employee population, according to a new survey from Mercer Human Resource Consulting. At these organizations, pay increases originally budgeted at 3.6 percent now will average about 3.2 percent.

A survey by Sibson Consulting found a similar projection--average pay hikes in the 3.0 percent to 3.3 percent range.

The Mercer survey, which was conducted in October and included responses from more than 500 employers, provides an update to Mercer's 2003/2004 U.S. Compensation Planning Survey, conducted in April. At that time, U.S. employers had budgeted overall average pay increases of about 3.5 percent for 2004.

At some companies, workers can expect little more than the proverbial lump of coal. "A small number of employers still have budgeted no pay increases for at least some of their employees in 2004, indicating that they can't afford pay increases--especially in concert with rapidly rising healthcare costs and pension funding requirements," says Steven E. Gross, a leader in Mercer's U.S. compensation consulting practice.

Looking ahead to 2004, about half of the employers surveyed are projecting that 2004 incentive payouts will be equal to 2003 levels; about a third expect 2004 payouts to be greater than 2003 levels, and the remainder expect 2004 payouts to be less than 2003 levels. Last year, those payouts ranged from 31.5 percent of base salary for executives to 16.9 percent for management employees and 4.5 percent for nonunion hourly employees.

The results of Mercer's 2003/2004 U.S. Compensation Planning Survey Update are available at www.imercer.com.

Corporate America is being stingy because the inflation rate is about half the average pay increase percentage and businesses have only recently gotten their costs in line and want to wait until uncertainty about demand lifts, says Peter LeBlanc, a senior vice president at Sibson. He adds that the labor market remains soft, causing few employers to worry about turnover.

LeBlanc adds that more people will be getting zero pay increases to allow for differentiation for top performers. Pay increases after taxes might not even cover increases in health insurance cost deductions on paychecks, and many employees are doing more work because co-workers have been laid off, he adds.

Projected and Actual Base Pay Increases 2000-2003;
Projected Base Pay Increases, 2004

BASE PAY INCREASES *

       Projected   Actual

2000     4.2%       4.2%
2001     4.2%       4.4%
2002     4.3%       3.7%
2003     3.9%       3.5%
2004     3.5%

* Exempt employees

Source: Sibson Consulting

Note: Table made from bar graph.