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Annual Pay Raises Slump To Level Not Seen In Decades

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The Wall Street Journal

Published: December 21, 2008

Employers, who as recently as October said they were barely modifying their salary budgets for 2009, have changed their tune in December, this time bringing some workers' projected annual pay raises to a low not seen in three decades.

Overall, workers are now projected to receive average annual merit increases of 3 percent next year, according to a new survey from Lincolnshire, Ill.-based Hewitt Associates Inc. When polled in October, employers said they had already lowered their budgets to 3.6 percent from 3.8 percent in July.

The latest study shows that pay raises for some workers are expected to sink even further. "It's a clear signal that companies are very concerned about managing their fixed costs," says Ken Abosch, North American compensation practice leader at Hewitt. As a result, workers at the firms that say they've already cut their budgets can expect to receive average annual pay raises of just 2.5 percent.

There's a slight silver lining for rank-and-file workers in comparison with executives at firms that say they've reduced or may reduce the raise pool. The average annual merit increase for blue-collar workers is projected to be 2.6 percent with 2.5 percent for white collar workers, versus 2.2 percent for executives.

Still, both groups of employees will see their incomes grow by the smallest amount since Hewitt began tracking the data in 1976. It's also below the 3.1 percent level employers reported offering in 2001 following the Sept. 11 attacks.

Workers in education and financial services are also expected to receive below-average annual merit increases of 2.3 percent and 2.9 percent, respectively, down from 3.5 percent and 3.9 percent in July.

Meanwhile, workers in the construction, engineering and pharmaceutical industries are projected to see above-average salary increases - as high as 4.5 percent in construction and engineering. In addition, research and development professionals can also expect to see increases of about 4 percent.

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