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Surveys say your raise may be a pleasant surprise
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  Surveys say your raise may be a pleasant surprise
Surveys say your raise may be a pleasant surprise
Employees ranging from those who have earned promotions to those who just stuck it out with no raise last year may be receiving above average raises this year.
 

Salaries are expected to move up only somewhat in 2005 and, in general, workers are bracing for yet another year of historically low raises: 3.7% for 2005 compared with 3.6% in 2004. But before you get too concerned, there are a few things to remember. First, 3.7% is just the average raise. Employees ranging from those who have earned promotions to those who just stuck it out with no raise last year may be receiving above average raises this year. Second, even if you receive at or slightly below the average, you're likely to still be ahead of inflation (i.e. cost of living), which was only 2.5% in 2004, which means you'll have a little more money left for spending or saving after paying your bills. Third, base pay is only part of the picture for most employees now. Although base pay levels are expected to increase slightly over last year, experts say the long-term compensation outlook for employees is strong with regard to bonus pay. Finally, the numbers are better than you expected, according to a recent Salary.com poll.



Raise outlook better than employees expected, according to Salary.com poll
It appears that many regular workers may be in for a pleasant surprise. In November 2004, Salary.com asked you to weigh in with your 2005 pay hike expectations. One out of four respondents expected no raise at all while overall the average anticipated increase came in at 3.4%. This is considerably lower than the 3.7% consensus among employers, according to a study released recently by WorldatWork, an association of compensation and benefits professionals. Many respondents echoed themes from recent years by saying they felt fortunate to even have a job during the recent business climate. As one respondent in the property management field put it, "it's a chain reaction-the economy has to improve so that business income can improve so that I can receive a raise."

Bonuses are becoming more widely used
There is a continuing rise in companies using bonuses and other forms of variable pay to reward high performing individuals and business units. For the fourth consecutive year, the use of variable pay is on the rise. Seventy-seven percent (77%) of organizations now integrate variable compensation into their employee pay packages, up from 66% in 2001, according to the WorldatWork. In the 1990s, employees in only approximately one-third of all companies were eligible for bonuses of some kind. In those companies that do now offer variable pay, about 3 of 4 employees actually received such compensation last year.

The expanded use of bonuses is here to stay. Says Bill Coleman, senior vice president of compensation at Salary.com, "there is going to be less focus on salaries in the future, and it's unlikely we will see raises like we used to unless there's massive inflation. More likely, salaries will continue to increase just one or two ticks above inflation." The trend toward bonuses is an outgrowth from the recent years of economic uncertainty and weakness, as variable compensation is an effective way for an employer to have a lower fixed component of its personnel budget. Average incentive budgets for non-executives range from about 4.5% to 12.5%.

Certainly, the amounts granted vary widely by company and are generally dictated by business results. It is expected that companies will work extra hard to find some money this year for bonuses since they've had to do so much penny pinching in recent years. Companies are well aware that employees are beginning to get restless and as the economy and job market are improving, dissatisfied employees now do have an alternative-finding another job.

Long term outlook looks strong for employees

So when it comes to salary negotiations, who's calling the shots these days: workers or companies? The question of which side has the upper hand depends of course on a number of factors, the most significant of which is overall supply of jobs and demand for suitable workers in a company's recruiting market. In the late 90's, it was clearly an employee's market, whereas in the early part of this century, it's been very much an employer's market. In December 2004, a tracking study released by Monster Worldwide indicated a surge in demand for workers in the last twelve months as measured by online job postings. Industries that saw the greatest lift in online posting activity were professional, scientific & technical services and utilities. This report bodes well for salary increases and bonuses, and might indicate that 2005 will see bigger raise and bonus budgets than is being predicted by employers and that could set the stage for good "raise years" in 2006 and beyond, says Coleman. "Activity in the job market is good for employees. Over the next ten years, we would expect to see the economy stabilize and improve, which would increase the need for employers to use money to attract and retain better workers."

More information about bonuses

If you would like to learn more about variable pay and total cash compensation, please click here to read to Salary.com series of articles on bonuses.

-By Tim Driver, SVP & GM, Consumer Products, Salary.com

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