Pay Hikes to Shrink : But Smaller Raises May Aid Economy Later
Many employers are expected to limit workers’ pay raises and benefit increases next year to what could be the smallest percentage gains since 1987, and perhaps the 1970s, as a result of economic hard times and low inflation.
“Employers are going to be very stringent,” said Audrey Freedman, a labor economist for the Conference Board, an influential business research group in New York. “There’s no other choice right now.”
At the same time, companies are relying more on merit pay and less on cost-of-living increases, a trend that could spread raises among fewer employees.
Next year will bring continued “stagnation or slippage” in the standard of living of the average worker, said Sar Levitan, director of the Center for Social Policy Studies at George Washington University in Washington.
In Orange County, a recent survey of 21 major employers by the consulting firm TPF & C found that the average merit raise planned for top management in 1992 is 5.4%. The average for middle management and hourly employees is 5.2%.
Analysts generally say the lower pay and benefits raises will restrain the nation’s recovery from recession over the coming year by dampening consumer spending. Still, economists said, slower increases in employers’ payroll expenses could pave the way for a moderate but long-lasting economic rebound later in the decade.
Just this week, Hughes Aircraft--one of Orange County’s biggest employers--announced that it would try to hold down expenses by freezing executive salaries next year and by delaying the salary reviews of 55,000 employees from March to July. Slumping USAir asked its unions to accept 15-month pay cuts for 47,000 U.S. employees in order to try to save the company $400 million in 1992.
More typically, though, employers are expected to make small to moderate cuts in pay and benefit increases in 1992. Meanwhile, USAir and many others also are asking employees to foot more of the cost of their health insurance.
Last year, the U.S. Bureau of Labor Statistics’ employment cost index--considered the best barometer of American wage and benefit increases--climbed 4.9%. The most recent statistics available showed the same rate of increase in the first half of this year.
But next year, Freedman estimated, the figure for all civilian workers will be about 3.5%--the lowest level since the federal government began publishing the index nearly a decade ago. Even if the 1992 increase is as high as 4%, as projected by many other economists, it would be the smallest gain since the 3.6% rise in 1987.
“It’s not going to be a good year,” said UCLA labor economist Daniel J. B. Mitchell, whose own preliminary estimate is for the index to rise about 4%.
For workers facing smaller pay hikes or even pay freezes, there is some consolation. At a time of high unemployment and massive layoffs at some companies, many workers may be happy just to hold onto their jobs.
When Sears, Roebuck & Co., for example, announced 10 months ago that it would freeze the salaries of 20,000 workers, there were few complaints, company spokesman Perry Chlan said. Word of the pay freeze came at the same time that thousands of other Sears employees were losing their jobs. In comparison, Chlan said, the freeze “wasn’t that bad.”
In Orange County, thousands of layoffs in the past year have hit the real estate industry--one of the county’s biggest businesses--depressing prospects for wage increases for the employees who remain.
For instance, there probably will not be any raises next year for employees of Dryer & Young Inc., a Newport Beach new-home marketing company. President Charles Dryer said business--and his payroll--has fallen by 50% since the real estate boom ended in 1989.
“I don’t think we will do any hiring of administrative people next year,” he said. “Our business plan shows the current conditions continuing well into the year. Salaries and benefits won’t be reduced, but they won’t be increased, either.”
Dryer said that most of the company’s employees are sales agents who work on commission and incentive plans at new-home developments. “And we are not planning any increases in commission rates of bonuses either,” he added.
At the Koll Co. in Newport Beach, one of the West Coast’s largest developers, low rents and loads of empty space in office buildings have brought a shift in strategy away from building. It has also meant that there were few raises when Koll did its annual review of employees in June.
The company says most of the resulting raises were below the rate of inflation, which ran about 5%.
“Raises were a lot more modest this year,” said a spokeswoman. “And a lot of people stayed right where they are.”
Meanwhile, USAir’s unions plan to study the company’s financial records before deciding whether to agree to any pay or benefit concessions. But “the main thing is that we want our company to survive,” said Carol Austin, president of the USAir branch of the Assn. of Flight Attendants.
Also softening the impact of slowing pay and benefit increases is the widely predicted fall in inflation for next year. Running at just over 4% this year, inflation is expected by many economists to be about 3.6% in 1992.
And some companies--even those connected with the local real estate market--say the prospects for raises are pretty good.
Bonuses, for instance, are likely at the Hammond Co., a major regional mortgage banking firm headquartered in Newport Beach.
With the savings and loan industry in tatters, mortgage bankers have seen their share of the home-loan market nearly double in the last year, said company founder Thomas Hammond.
“So this year, things are looking pretty good,” Hammond said.
The bonuses have ranged from 5% of base salary in a bad year to 50% in an excellent one.
This year, bonuses will range between 25% to 35%, he said.
Employee raises fell through much of the 1980s, as employers felt less pressure from inflation and more from overseas competitors. But after bottoming in 1986 and 1987, the increases picked up, partly because employers were spending more to cover workers’ skyrocketing health-care expenses.
Declining pay and benefit increases should hit private-sector workers hardest as their employers try to adjust quickly to shifts in the economy. But raises for federal, state and local government workers are slowing too.
The trend comes amid the growing use of incentives, such as special onetime bonuses and stock options to employees many levels removed from the executive suite. For instance, such companies as Wendy’s, Toys R Us, Pepsico and Pfizer Inc. recently began making stock options available to all of their employees.
Companies are “being asked to do more with fewer dollars in the salary pot for next year,” said Donald Atwater, a principal in the Los Angeles office of the consulting firm William M. Mercer Inc.
To offset the added cost for these incentives, many companies are reducing their across-the-board cost-of-living increases. In addition, over recent years employers have increasingly required employees to shoulder more of their health-care expenses, a trend that shows no sign of slowing.
In a survey by benefits consultant A. Foster Higgins & Co., 57% of the 1,955 employers that responded required employees in 1990 to cover part of the cost of their individual health insurance. A year earlier, the figure was 45%.
Separate surveys by compensation consultants foresee slight declines in wages next year. For instance, a poll of 550 companies by Princeton, N.J.-based Sibson & Co. found that pay increases would be 5.1% in 1992, down from 5.2% the year before and the lowest level since Sibson began tracking the data 18 years ago.
Compensation consultants’ studies generally show bigger increases than the government reports because, typically, they do not account for highly paid workers who retire and are replaced by lower-paid personnel.
The consultants’ figures apply to workers who are now employed and who will be in their same jobs a year from now. The more comprehensive government figures, on the other hand, indicate what employers are spending, per worker, on pay and benefits.
Employees at small businesses, meanwhile, are feeling the pinch. Claudia Roxburgh, owner of the Roxburgh Agency, a Newport Beach advertising and public relations firm, said she has dismissed 23 workers, about half of her staff, since January and has kept a tight lid on pay to keep the business running.
This year, she said, “we drew a line at $30,000, and nobody above that got a raise. For the younger people who were making less than $30,000--well, we tried to give them at least enough to keep them slightly ahead of the cost of living.”
Those raises, she said, averaged 5% to 6%.
Times staff writers Michael Flagg and John O’Dell in Orange County and Greg Johnson in San Diego also contributed to this story.
Union Versus Non-union Pay and Benefit Increases The following figures reflect the annual increases private sector employers have paid, per worker, in salaries, wages and benefits. Non-union Workers: 4.8% Union Workers: 4.3% Source: U.S. Bureau of Labor Statistics
Declining Wage and Benefit Increases The following figures reflect the annual increases employers have paid, per worker, in salaries, wages and benefits. The statistics apply to all civilian employees, both private sector and public sector. 1991: 4.9%* * Projection based on rate of increase during first six months of the year. Source: U.S. Bureau of Labor Statistics
