Mercer: Employers Adjusting Pay Increase Budgets

November 20, 2002 ( - One-third of surveyed companies are adjusting their 2003 pay increase budgets, according to Mercer Human Resources Consulting.

Pay increase budgets for 2003 have declined 0.5% since April, according to Mercer’s 2002/2003 US Compensation Planning Survey Update. Contacting over 400 companies in October, Mercer found one-third have made changes to 2003 pay increase budgets.  

October’s update shows salary increases for 2003 will now be:

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  • Executives: 3.5%, down 0.4% since April
  • Management: 3.5%, down 0.4% since April
  • Technical/Professional: 3.4%, down 0.5% since April
  • Nonexempt Clerical/Technician: 3.4%, down 0.4% since April
  • Nonunion Hourly: 3.3%, down 0.3% since April

However, factoring in all employers surveyed, the net change is a drop of about 0.1%, said Mercer.

Overall, employers planning salary increases in 2003 report top performers will receive an average base pay increase of 5.2%, average performers an increase of 3.5% and weak performers 1.2%.

“Even though their original 2003 pay increase budgets may have been set months ago, employers have been keeping a close eye on the economy and their own business results and are adjusting their budgets accordingly,” says Steven Gross, who leads Mercer’s compensation consulting in the US.   “Employers have been doing a good job of cost control, and that’s allowed some to exceed bleak performance forecasts for the year.   So while most are still holding the line on base pay increases, we are seeing a rebound in bonus pay this year at some organizations.”

One reason for the decline in pay increase budgets is the rising cost of employee benefits.   Traditionally, employee benefit budgets are developed separate from pay increase budgets, but this year Mercer’s survey noted:

  • 8% are lowering 2003 salary increases to offset additional health care expenses
  • 9% are considering taking this step

Additionally, pension budgets are also having an effect on employee pay increases:

  • 2% are lowering 2003 salary increase budgets to offset pension funding requirements
  • 5% are considering taking this step

“Employers are taking a holistic view of their reward programs, looking at how the various components together impact both the employee and the organization,” said Gross.  

Mercer plans to release the final results of its 2002/2003 US Compensation Planning Survey Update in December.   More information can be found at .