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2003 Raises Lowest in More Than 30 Years
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| 2003
Raises Lowest In More Than 30 Years |
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For
most employees in the American workforce, 2003 will mark the year
with the lowest average salary increases of their careers.
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For
most employees in the American workforce, 2003 will mark the year
with the lowest average salary increases of their careers. Overall,
salary increases for 2003 are expected to come in around 3.4%, which
is the lowest rate in more than 30 years. Don't be too alarmed, however.
There are a number of other factors to be taken into account.
Thirty years ago, the US was going through a period of significant
inflation, driven in part by the gas crisis of the early and mid seventies.
At that point in time, average raises were 8-10%, but inflation in
the seventies was 7-8%, leaving an effective increase in buying power
of 1-2%.
Through the eighties, the economy improved, inflation dropped to 5-6%
and salary increases began to decline. In fact, during the eighties,
average salary increase rates dropped from 10% per year to just over
5% per year. In the first half of the 1990's, with the very low US
inflation (3-4%), those same salary increase rates dropped to about
4-4.25% and they stayed there through 2001.
The result of the burst of the Internet bubble and the major drop
in the US stock market resulted in cost cutting for most US employers,
which in turn has resulted in a decrease in annual raises¾3.7% in
2002 and 3.4% in 2003. Bill Coleman, SVP of Compensation at Salary.com
reminds us that "it's important to remember that salaries are a lag
indicator". This means that they follow the economy. "Basically,"
says Coleman, "we'll see salary increases begin to rise several months
after the economy turns around."
Remember, these are just salary increase rates. During the same period
that annual raise budgets were dropping below the 4% level, participation
in variable pay (pay-for-performance) plans was increasing to it's
highest levels ever. Approximately 3-of-4 organizations now offer
such plans. These incentive plans, which have been increasing in use
and depth of coverage (i.e., levels of the organization eligible)
since the mid 1980's have become a standard of corporate America.
By using pay-for-performance plans, employers have been able to better
link their compensation costs to business performance. This has allowed
them to keep compensation costs in sync with their bottom lines.
Finally, the future appears to be looking brighter. The expected salary
increase rates for 2004 are trending upward from the real 2003 rates.
Whereas average raises in 2003 are around 3.4%, employers are predicting
2004 rates will be 2-3 tenths of a percent higher¾that is, 3.6-3.7%.
"Keep in mind, these rates are projections and we won't know the real
rates until they are actually determined by employers but," says Coleman
"what we can conclude from this is that employers are optimistic about
the future. And that's good news."
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Lena Bottos, Salary.com contributor
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