Mercer: 2004 Merit Budgets Scaled Back

November 19, 2003 ( - Merit budgets previously forecast at 3.5% in 2004 have been scaled back to 3.3%.

The revision to Mercer Human Resource Consulting’s 2003/2004 US Compensation Planning Survey comes after an October survey found 40% of US employers are planning on reducing merit budgets in 2004. Among employers offering a reason for the move, 6% of those companies lowering their merit expectations point to rising health-care costs, 3% say it is due to pension fund requirements and 4% attribute a combination of the two. Companies weighing the possibility of cutting back merit budgets cited identical numbers.

Pay increase budgets were lower across the employee category board. Executives, previously staring at a 3.5% merit budget in 2004 can now only expect 3.3%, followed by identical numbers for management and technical/professional professions. Faring better will be nonexempt clerical/technician employees – where merit increases look to be cut from 3.4% to 3.3% – and nonunion hourly jobs – now projected at 3.2% from earlier 3.3% estimates.

More sobering news came out of expected short-term incentive payouts for this year. While approximately one quarter of the 500 companies polled by Mercer said bonus payouts will be larger in 2003 than 2002, far more are now projecting payouts will be equal to or less than 2002 levels. Per employee category, 39% of companies expect executive incentive payouts to be equal to 2002, 26% are saying they will be higher, with 35% telling Mercer executive bonuses will be lower. This compares to nearly half (48%) of the respondents expecting to keep nonunion hourly budgets at 2002 levels, with 25% chipping in more and 27% cutting back from 2002’s level.

The silver lining could be found in the fact that more companies say they are expecting to increase incentive payouts in 2004. Where executive bonuses are expected to be 31.5% of base salary in 2003, companies are increasing that to 34.7% of base in 2004. Likewise, increases were noted in:

  • Management – 16.9% of base in 2003; 19.3% in 2004
  • Technical/Professional – 10.2% of base in 2003; 12.9% in 2004
  • Nonexempt Clerical/Technician – 7.2% of base in 2003; 8.6% in 2004
  • Nonunion hourly – 4.5% of base in 2003; 5.0% in 2004.
Mercer’s data includes responses from more than 1,700 US employers and reflects the pay practices of nearly 15 million workers.The results of Mercer’s 2003/2004 US Compensation Planning Survey Update will be available at beginning in December.