Message to the Rank and File: Forget About That Hefty Hike in Pay
Profit at the Silicon Valley company had doubled for the second straight year. The chief executive stood to reap tens of millions of dollars in stock options. But among the hundreds of engineers, the grumbling grew louder and louder as word spread of their annual raise: an average of 4%--again.
The company defused the uproar by hiring a consultant, who explained in small-group meetings how the chief executive had built value into his once-worthless stock options. But more subtly, consultant Charles King delivered another message to the rank and file: Forget about hefty increases in base wages for everybody.
Indeed, as the last few years have shown, a sea change has taken place in the way corporations are paying workers. Pushed by the powerful stock market, technology revolution and global competition, companies have moved away from giving uniform increases to the masses to rewarding select individuals with cash and stock bonuses.
But even as this compensation model has spread from one company to another, many employers have not made it explicit that this is the way it’s going to be. And understandably, at annual pay raise time, bosses have become unhappy bearers of bad news to the troops.
“There’s not much dialogue on that issue,” King said, noting that some executives do not view it in their interest to emphasize this Darwinian pay model.
Yet in management actions, it has been made abundantly clear. Consider: For most workers, the average salary increase was 4% in 1997, 1998 and 1999. And the projection for next year: also 4%, according to a new survey by the American Compensation Assn. in Scottsdale, Ariz.
At the same time, the number of firms offering variable pay plans, or performance-based awards that must be re-earned every year, has risen dramatically. Almost three-quarters of U.S. companies now have them, compared with less than 50% in 1990, according to Hewitt Associates, a management consulting firm in Lincolnshire, Ill.
“In the last five years, there’s been a shift in emphasis from paying the job to paying the person,” said Alison Peterson, a Hewitt consultant in Newport Beach. Peterson, however, added that while a 4% raise may look awfully small, it’s still outpacing inflation.
Even so, there’s no question many have been disappointed by the seemingly puny increases in their paychecks during the nation’s longest peacetime economic expansion and exceedingly tight labor market. What’s going on? they’re asking.
One explanation is the long bull market, which has enabled management to link workers’ pay to the company’s market performance. While more and more workers are benefiting from broad-based stock options, what management doesn’t stress is that this “reward” can be worthless.
“Management has been very successful in enlisting labor into the aura of the stock market,” said King, a longtime consultant for William M. Mercer in San Francisco who now heads Benefits Alliance in Larkspur, Calif.
Surveys also suggest that while more employers are using performance measures to pay workers, many companies have not made it clear what targets workers must meet to qualify for these one-time bonuses.
Just how much workers are boosting their total pay with options and other contingent forms of payment is unknown. On the whole, though, wages have been unusually restrained in the face of the tightest labor market in a generation, reflecting how tightfisted companies have become in keeping down expenses.
“It’s approximately the same thing all the time,” said Steven Dornbusch of the Hotel and Restaurant Employees Local 681, whose workers at Disneyland and other major companies receive an average increase of 3% a year.
Organized labor and other groups have begun to be more aggressive in demanding a greater share for workers. But if the Teamsters’ recent settlement with companies that haul new cars to dealers is any indication, analysts say it’s unlikely unions will be able to exert big increases in base pay. The Teamsters’ pay increases in the new contract amounted to less than 3% a year, although the union won higher pension and other benefits that may be even more valuable.
Most workers, however, aren’t union members. And apart from certain high-demand workers such as computer programmers, who know they have lots of leverage, they haven’t figured out how to grapple with this pay structure.
Robin Ryan, a veteran career coach and author in Seattle, advises her clients to find answers to two key questions: Can you get an internal promotion at the company that will boost your pay substantially? Are you being paid what you’re worth in the marketplace? Those answers, she said, will help workers with their next move.
Undoubtedly, Ryan said, more workers are jumping ship because of stagnant wages. And it is creating more potential problems for management. At Boeing, she said, even as the firm is laying off thousands of workers, the company is hiring young engineers and paying them more than those who have been there for years.
“Where the worker is having trouble is that new workers are coming in at equal or higher salaries,” said Beverly Kaye, president of Careers Systems International, a management consultant in Sherman Oaks. That’s a big reason management doesn’t want workers to know what everyone else is making, she said. “They don’t want the risk of losing these people.”
Even if they do know what others make, most workers are reluctant to take up the issue of a bigger raise with the boss. And if the boss says no to more money, Kaye said, why not ask for other things that may compensate for the smaller raise, such as attending a desirable conference, better scheduling or other perks?
“Most grumble and moan and don’t ask,” she said. “But for heaven’s sake go in, adult to adult, with a potential solution.”
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The Rise of Bonus Pay
Even though base wage increases for most workers have remained stagnant in recent years, performance-based contingent pay, or variable pay, such as cash bonuses and stock options, has become much more prevalent.
Wage increases remain flat . . .
Percentage increases in pay:
*
. . . but variable pay is rising, despite mixed results
* Share of firms offering variable pay plan: 72%, up from 47% in 1990
* Variable pay as a percentage of overall payroll expenses: 8%, up from 4% in 1990
* Share of firms reporting such pay plans have helped meet a company objective: 22%; failed to meet an objective: 28%.
* Share of firms planning to increase such payment forms next year: 14%
Sources: American Compensation Assn.; Hewitt Associates
