SURVEY Health benefits cause pay raises to remain low

Pay raises this year and next year will barely top inflation.
NEW YORK (AP) -- Employers are dispensing notably smaller pay raises this year -- well below the 4-percent-plus increases routine before the economy lost its footing -- and workers should not expect much improvement in 2004.
Companies tapped in a pair of surveys have budgeted pay increases averaging 3.3 percent to 3.5 percent this year and plan about the same next year, the smallest raises for workers since at least the mid-1970s.
The belt-tightening reflects employer efforts to balance pay with rising worker health care bills and pension costs in a business climate that has made it difficult to raise prices for their own products, according to a survey released today by Mercer Human Resources Consulting.
Those pressures are layered on top of employers' continued caution about the lingering downturn and an anemic job market with an oversupply of workers, says the Mercer survey and another put out last month by the Conference Board, a private research group.
Employers "are saying, 'I can't raise prices.' Well, I've got to raise productivity," said Steven Gross, a compensation consultant for Mercer. "People are flogging their workers to get more out of them as a means to increase profits, coupled with the fact that there's more supply than demand for labor today."
Pay changes
That approach is also evident in companies' early planning for next year. Employers in both surveys said they expect to grant median increases of 3.5 percent in 2004. Even with inflation remaining low, the limited raises will cap real gains below 1 percent this year and next.
Over the past 10 years, pay increases have topped the rate of inflation by between 1.1 percent and 2.6 percent, according to the Mercer survey.
"That's really the whole key. ... It's not the percent size of the increase. It's the increase relative to inflation," said Charles Peck, compensation specialist with the Conference Board. "It's getting a little bit tight."
Inflation is expected to hover at about 2.6 percent this year and 2.7 percent next year, limiting how much more people will really be taking home.