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No big pay raises for American workers

U.S. workers will get an average 3.6 percent increase in pay this year. Some workers, though, might find something extra in their paychecks if their bosses are really pleased with their work.
/ Source: The Associated Press

A rebounding economy and improving job market aren't translating into big pay raises for U.S. workers, who'll get an average 3.6 percent increase this year. Some workers, though, might find something extra in their paychecks if their bosses are really pleased with their work.

Results of a survey released Tuesday by Mercer Human Resource Consulting show the size of the average raise this year is little changed from 2004, when pay hikes averaged 3.5 percent. But the increases are generally helping workers stay ahead of inflation, which has risen at annual rate of 3.1 percent so far this year.

A separate survey issued last month by the Conference Board was in line with Mercer's, finding that salaries are expected to rise an average 3.5 percent.

This is the third straight year that employers are granting raises under the 4 percent-plus level common in the 1990s, but many individual workers are actually doing better because the use of one-time compensation such as bonuses has increased, said Steven Gross, a senior consultant at Mercer who specializes in looking at employee compensation.

"This is not bad news, this is good news." Gross said. "In aggregate, employers are providing more compensation, it's just not directly in base pay."

With employers under pressure to hold down their fixed costs, many are reluctant to increase base pay and are more likely to use bonuses and other one-time rewards. Mercer said 86 percent of its survey respondents reported they used some kind of short-term incentive in 2005.

The survey included nearly 1,350 employers across the country and reflects pay practices for nearly 13 million workers.

Signing bonuses have become increasingly popular as companies try to compensate for lower raises and attract talented employees. Fifty-five percent of survey respondents said they gave out signing bonuses during 2005.

This trend is most apparent in the information technology companies, where 65 percent of the respondents said they offered signing bonuses this year. They were also common in accounting and finance companies, where 46 percent said they granted such bonuses, and in engineering, where 38 percent of respondents gave them.

Spot cash awards were also popular in 2005, with information technology companies again the most likely to use this form of compensation.

Looking ahead to 2006, Mercer found employers were likely to continue using spot rewards and bonuses while the average expected pay raise rate remains constant at 3.6 percent.

Among the five categories Mercer divides employees into, management employees and technical/professional employees on average received a 3.6 percent pay increase in 2005, and are expected to receive the same in 2006. Nonexempt clerical/technician employees, who hold positions such as secretaries and lab technicians, are receiving an average of 3.5 percent raises this year and can expect 3.6 percent next year.

Nonunion hourly employees are seeing average raises of 3.4 percent and are likely to see 3.5 percent increases next year. The pay raise rate for executive employees, on the other hand, is expected to decline from an average 3.9 percent in 2005 to 3.8 percent in 2006.

While the overall pay raise rate will remain constant, the good news for employees is that there appears to be a halt in salary freezes. Dramatically down from 16 percent in 2002, only 2 percent of employers reported salary freezes in 2005. In 2004, five percent of employers reported salary freezes.

Employers providing compensation through stock options declined to 31 percent this year, down from its peak of 37 percent in 2002. The decline is expected to continue with only 1.4 percent of survey respondents considering stock options as compensation for the first time.

Gross said the drop in stock options is the result of changing accounting methods that have made the once free commodity too expensive for companies to continue using.