Survey: Pay Raises Average 3.6%; Use of Bonuses Is Up

A rebounding economy and improving job market aren’t translating into big pay raises for U.S. workers, who’ll get an average 3.6% increase this year. Some workers, though, might find something extra in their paychecks if their bosses are really pleased with their work.

Results of a survey released Tuesday by Mercer Human Resource Consulting show that the size of the average raise this year is little changed from 2004, when pay hikes averaged 3.5%. But the increases generally are helping workers stay ahead of inflation, which has been 3.1% on an annualized basis this year.

A separate survey issued last month by the Conference Board was in line with Mercer’s, finding that salaries were expected to rise an average of 3.5%.

This is the third straight year that employers are granting raises under the 4%-plus level common in the 1990s, but many individual workers are actually doing better because the use of one-time compensation such as bonuses has increased, said Steven Gross, a senior consultant at Mercer who specializes in employee compensation.

“In aggregate, employers are providing more compensation; it’s just not directly in base pay,” Gross said.

With employers under pressure to hold down their fixed costs, many are reluctant to increase base pay and are more likely to use bonuses and other one-time rewards. Mercer said 86% of its survey respondents reported that they used some kind of short-term incentive in 2005.

The survey covered nearly 1,350 employers across the country and reflected pay practices that affect nearly 13 million workers.

Signing bonuses have become increasingly popular as companies try to compensate for lower raises and attract talented employees. Fifty-five percent of survey respondents said they gave out signing bonuses during 2005.

This trend is most apparent in the information technology sector, where 65% of the respondents said they offered signing bonuses this year. At accounting and finance companies, 46% said they had granted such bonuses, and among engineering firms, 38% of those surveyed gave them.

Spot cash awards also were popular in 2005, with information technology companies again the most likely to use this form of compensation.

Looking ahead to 2006, Mercer found that employers were likely to continue using spot rewards and bonuses and to keep the average pay raise at 3.6%.

Among the five categories into which Mercer divides employees, management employees and technical/professional employees on average received a 3.6% pay increase in 2005 and were expected to receive the same in 2006. Nonexempt clerical/technician employees, such as secretaries and lab technicians, are receiving raises that average 3.5% this year and can expect 3.6% next year.

Nonunion hourly employees are seeing average raises of 3.4% and are likely to see 3.5% increases next year. The average pay raise for executive employees, on the other hand, is expected to decline from 3.9% in 2005 to 3.8% next year.

Although the overall pay raise rate will remain constant, the good news for employees is that there appears to be a halt in salary freezes. Only 2% of employers reported salary freezes in 2005, down from 16% in 2002. In 2004, 5% of employers reported salary freezes.

The percentage of employers that are providing compensation through stock options declined to 31% this year, down from the peak of 37% in 2002.

The decline is expected to continue. Only 1.4% of survey respondents were considering stock options as compensation for the first time.

Gross said the drop in stock options was the result of changing accounting methods that have made that compensation vehicle too expensive for companies to continue using.