A Worker’s Climate

California’s improving economy is bringing people who work for the bigger employers in the state a double helping of good news: Layoffs will be down sharply this year, and pay raises appear likely to increase at least slightly, according to a new survey.

The poll found that employers in the state have budgeted pay raises of 4% for 1997, up from a comparable figure of 3.8% in 1996. In addition, the survey--a poll of 247 big and medium-size organizations by the New York-based management consulting firm William M. Mercer Inc.--found that 16% plan layoffs, down from 48% last year.

Mercer’s findings come amid strong economic growth and declining unemployment in California, reflecting the state’s steady recovery from its deep recession in the early 1990s.

“We have a very rosy economic picture,” said Charles T. King, the compensation consultant with Mercer in charge of the survey.

Based on growing confidence about the economy, not only are fewer employers planning layoffs, but more expect to expand their work forces. The survey found that 45% of the California employers surveyed expect to add staff, up from 36% a year ago.

Hiring is expected to be brisk nationally as well. Temporary-employment company Manpower Inc. released a survey Thursday predicting that the last three months of this year will be the strongest fourth quarter for hiring in 19 years.

King said that even though California’s 4% average pay increase budgeted for 1997 continues a pattern of modest raises that have persisted through the 1990s, this year should turn out better than expected for many workers. For one thing, he said, employers often wind up issuing bigger raises than projected in good years. Last year’s projected 3.8% rise, for example, turned into an actual increase of 4.1%.

Perhaps more importantly, he said, greater numbers of employees are receiving profit-sharing, stock options and other forms of so-called variable compensation. Those kinds of compensation aren’t included in the pay raise figures reported by Mercer.

Tom Lieser, associate director of the UCLA Business Forecasting Project, agreed that variable compensation is becoming more common, especially in fast-growing areas such as Silicon Valley. “It used to be an executive perk, but now, in technology companies, it’s widespread” among the work force, he said.

Lieser also noted that Mercer’s figures might understate the income growth of Californians because they don’t take into account the impact of the strong job gains in relatively high-paying industries such as entertainment, software and electronics. The Mercer survey focused on a fixed group of job categories and didn’t make any adjustments for occupations that are either fast- or slow-growing.

Another plus for workers’ pocketbooks: Inflation in California--currently running below the national rate--was just 1.8% in the first half of the year, versus 2% through all of last year.

However, given employers’ emphasis on rewarding their most talented performers but cutting costs elsewhere, King said the pay raises and other compensation gains will not be equally distributed.

“For strong performers, this is a great [job] market to be in, almost regardless of your job,” he said. “For weaker performers, it’s not such a good environment because the competition is . . . relentless.”

King and other observers suggested that the recent settlement of the Teamsters strike against United Parcel Service of America could encourage some unions to demand bigger pay increases but that the overall impact will be slight. In their five-year contract, the Teamsters gained annual pay raises of 3% for full-timers and 7% for part-timers, along with improved pensions and a commitment to add thousands of full-time jobs for part-time workers once the company’s business returns to pre-strike levels.

Economists said such factors as tough international competition, technological changes and the general weakness of labor unions suggest that pay raises will continue to be moderate, in California and the rest of the country, in coming years.

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Checking on Pay Trends

A survey of 247 California employers shows that they are planning pay raises averaging 4% this year, up slightly from last year, and that many fewer organizations anticipate layoffs. Other highlights of the study are below.

Pay and Benefits

* The average salary increase of 4% budgeted for 1997 is above the shrinking CPI.

* 69% of employees are required to contribute to their health-care plans in 1997 versus 47% in 1989.

* 88% of employees are required to contribute to their spouses’ health care versus 71% in 1989.

* Employers’ greatest concern in 1997 (cited by 85%) is strengthening the relationship between performance and pay.

* Employers’ second greatest concern (cited by 82%) is maintaining a competitive total compensation package.

* 93% of employers want to link individual performance directly to changes in individual pay.

* 19% of employers rate themselves as doing a good job relating pay to performance.

* 37% of employers rate themselves as doing a poor job relating pay to performance.

California’s Economic Environment

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1996 1997 Employers that 48% 16% plan layoffs Employers that view 40 59 California’s economic conditions as getting better Employers that view 9 6 California’s economic conditions as getting worse Employers that plan 36 45 to increase staff

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Source: William M. Mercer Inc.