Mercer: Pay Increases at 3.3% in 2003, 3.5% in 2004

July 30, 2003 ( - An uneven economy and employers hesitant to commit to more than they can afford are being fingered for another year of sub-par pay increases for employees.

Mercer Human Resource Consulting’s 2003/2004 US Compensation Planning Survey revealed pay increases will be averaging 3.3% in 2003 and will be only marginally higher in 2004 at 3.5%. With the 2004 projections, this also marks the third consecutive year that pay increases have been south of the 4% mark.

However, salary increases are not the only trick up employer sleeves in the quest for employee reward programs. For the fifth year in a row, non-monetary recognition awards continue to take the cake in terms of prevalence, with 72% of responding organizations offering them and another 11% considering them. Also being utilized by companies:

  • spot cash awards – 53% have, 8% considering
  • broad-based equity – 34% have, 2% considering
  • job-sharing arrangements – 33% have, 6% considering
  • team/small-group incentives – 30% have, 12% considering
  • multi-rater feedback – 27% have, 14% considering
  • skill-based pay – 17% have, 9% considering
  • competency-based pay – 15% have, 12% considering
  • sabbaticals – 12% have, 2% considering
  • concierge/errand service – 7% have, 4% considering.

With pay perhaps less of a motivational factor for employees today, employers are paying more attention to employee careers. One-fifth (22%) of respondents currently have formal career planning, and another 20% are considering implementing it. Additionally, competency-based performance management is currently used by 34% of the respondents, but another 18% are considering this approach.

“Such trends reflect the fact that employers today are placing a greater emphasis on building talent from within versus buying talent on the market,” said Steven Gross, a compensation consulting leader at Mercer, in a statement. “They want to spend their time and resources to develop the employees who already have demonstrated commitment to their companies.”

Frozen Pay

The overall salary averages do improve slightly – to 3.6% in both 2003 and 2004 – when the employers planning salary freezes are taken out of the picture. Mercer found this group, 12% of the total, is also trending downward, from 16% in 2002 to “very few” anticipating salary freezes in 2004. This is due in large part to optimism among corporations that the economy will improve before the New Year, says Gross.

However, that does not mean all employee groups will escape the potential for wage frostbite in 2003. For executives, salary freezes were more common in the computer software/services industry, where nearly three out of 10 (28%) could expect to see zero percent increases in 2003. This was followed by:

  • Real Estate – 25%
  • Hospitality/Restaurant – 23%
  • Consulting/Legal/Accounting – 22%
  • Government – 21%
  • Manufacturing/Electronics – 20%

On the other end of the scale, none of the companies in either the research and development or pharmaceutical/biotechnology industries were anticipating executive pay freezes in 2003. This was followed by a mere 4% of companies looking into such actions in the chemical and health-care industries and 6% in insurance and retail.

Group Breakout

Broken down, the projections for 2003 and 2004 show a great deal of compression among various employee group budget increases. Topping the charts in 2003 – sans salary freezes – are executives, with a 3.4% forecasted increase. This is followed by a glut of 3.3% raises for management, technical/professional and nonexempt clerical/technical employees. Rounding out 2003’s numbers is nonunion hourly workers schedule to receive a 3.2% increase.

Similar data is also reported in 2004. Once again, the executives lead the pack with a 3.7% projection, followed by:

  • management – 3.6%
  • technical/professional – 3.6%
  • nonexempt clerical/technical – 3.5%
  • nonunion hourly – 3.4%

Bright Side

The sunny side of the street shows that while pay budgets may be small, inflation is running almost a point less than salary increase budgets. The Conference Board, which earlier released similar salary budget projections (SeeConference Board: Salary Budgets At 3.5% in 2003) is projecting a 2.6% rise in the Consumer Price Index for 2003 compared with a 3.5% average salary budget. Additionally, WorldatWork is projecting a 3.5% salary increase in 2003 (See World At Work: Salary Budgets At 3.5% in 2003 ).

These numbers are encouraging for employers that are trying to avoid a “double whammy” of declining salary increases and rising inflation.

Mercer’s data includes responses from more than 1,700 US employers and reflects the pay practices of nearly 15 million workers. Additional information and survey results available for purchase can be found at .