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Salaries
are expected to move up only somewhat in 2005 and, in general, workers
are bracing for yet another year of historically low raises: 3.7%
for 2005 compared with 3.6% in 2004. But before you get too concerned,
there are a few things to remember. First, 3.7% is just the average
raise. Employees ranging from those who have earned promotions to
those who just stuck it out with no raise last year may be receiving
above average raises this year. Second, even if you receive at or
slightly below the average, you're likely to still be ahead of inflation
(i.e. cost of living), which was only 2.5% in 2004, which means
you'll have a little more money left for spending or saving after
paying your bills. Third, base pay is only part of the picture for
most employees now. Although base pay levels are expected to increase
slightly over last year, experts say the long-term compensation
outlook for employees is strong with regard to bonus pay. Finally,
the numbers are better than you expected, according to a recent
Salary.com poll.
Raise
outlook better than employees expected, according to Salary.com
poll
It appears that many regular workers may be in for a pleasant
surprise. In November 2004, Salary.com asked you to weigh in with
your 2005 pay hike expectations. One out of four respondents expected
no raise at all while overall the average anticipated increase came
in at 3.4%. This is considerably lower than the 3.7% consensus among
employers, according to a study released recently by WorldatWork,
an association of compensation and benefits professionals. Many
respondents echoed themes from recent years by saying they felt
fortunate to even have a job during the recent business climate.
As one respondent in the property management field put it, "it's
a chain reaction-the economy has to improve so that business income
can improve so that I can receive a raise."
Bonuses are becoming more widely used
There is a continuing rise in companies using bonuses and other
forms of variable pay to reward high performing individuals and
business units. For the fourth consecutive year, the use of variable
pay is on the rise. Seventy-seven percent (77%) of organizations
now integrate variable compensation into their employee pay packages,
up from 66% in 2001, according to the WorldatWork. In the 1990s,
employees in only approximately one-third of all companies were
eligible for bonuses of some kind. In those companies that do now
offer variable pay, about 3 of 4 employees actually received such
compensation last year.
The expanded
use of bonuses is here to stay. Says Bill Coleman, senior vice president
of compensation at Salary.com, "there is going to be less focus
on salaries in the future, and it's unlikely we will see raises
like we used to unless there's massive inflation. More likely, salaries
will continue to increase just one or two ticks above inflation."
The trend toward bonuses is an outgrowth from the recent years of
economic uncertainty and weakness, as variable compensation is an
effective way for an employer to have a lower fixed component of
its personnel budget. Average incentive budgets for non-executives
range from about 4.5% to 12.5%.
Certainly, the amounts granted vary widely by company and are generally
dictated by business results. It is expected that companies will
work extra hard to find some money this year for bonuses since they've
had to do so much penny pinching in recent years. Companies are
well aware that employees are beginning to get restless and as the
economy and job market are improving, dissatisfied employees now
do have an alternative-finding another job.
Long term outlook looks strong for employees
So when it comes to salary negotiations, who's calling the shots
these days: workers or companies? The question of which side has
the upper hand depends of course on a number of factors, the most
significant of which is overall supply of jobs and demand for suitable
workers in a company's recruiting market. In the late 90's, it was
clearly an employee's market, whereas in the early part of this
century, it's been very much an employer's market. In December 2004,
a tracking study released by Monster Worldwide indicated a surge
in demand for workers in the last twelve months as measured by online
job postings. Industries that saw the greatest lift in online posting
activity were professional, scientific & technical services and
utilities. This report bodes well for salary increases and bonuses,
and might indicate that 2005 will see bigger raise and bonus budgets
than is being predicted by employers and that could set the stage
for good "raise years" in 2006 and beyond, says Coleman. "Activity
in the job market is good for employees. Over the next ten years,
we would expect to see the economy stabilize and improve, which
would increase the need for employers to use money to attract and
retain better workers."
More information about bonuses
If you
would like to learn more about variable pay and total cash compensation,
please click here
to read to Salary.com series of articles on bonuses.
Author - Tim Driver, SVP & GM, Consumer Products, Salary.com
- content provided and republished with written consent by Salary.com
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