A slow comeback for pay raises

By Tammy Joyner

The Atlanta Journal-Constitution

It’s going to be a long, slow thaw.

American workers, many of whom have gone two years without raises, may see a little more money in their paychecks this year as companies warm to the idea that the country may be emerging from the recession.

Earlier this month, Atlanta employers Delta Air Lines and UPS announced they would be granting some pay increases. Nationally, more than 65 percent of the companies that froze salary budgets in 2009 said they will unfreeze them this year, according to Towers Watson, a global compensation consulting firm. Other pay experts such as Mercer and The Conference Board report similar findings.

But even if budgeted raises come through, that doesn’t mean workers will make up lost ground.

The amount of money companies have budgeted for potential pay increases this year is the lowest in 25 years, according to The Conference Board, a global business and research nonprofit in New York.

The board’s latest survey on pay raises shows that salary increases budgeted by U.S. companies this year will be below 3 percent for the first time in more than two decades. Separately, salary adjustments — a pool of money earmarked for all employee pay grades to cover changes in the cost of living and other salary market changes within the industry — for all categories of workers won’t top 2 percent, well below the board’s forecasted inflation rate of 2.6 percent.

How much of a pay increase workers may get depends on many factors, including what they do for a living, where they live, and how valuable their job is to the company. With employers operating on limited budgets, job performances are under greater scrutiny, according to Towers Watson, and workers who don’t meet expectations will see raises cut or eliminated, enabling companies to be more generous to their best performers.

“As the economy improves and companies start hiring again, you’ll start to see some attraction and retention pressures for high-performing and high-potential employees,” said Laura Sejen, New York-based global practice leader of Towers Watson’s rewards consulting practice.

Companies are cautious

Employers use pay raise studies from compensation experts like Towers Watson and Mercer as a benchmark for setting pay.

Compensation experts predict pay increases will be, on average, between 1.5 percent and 3 percent — barely enough to help workers and their families keep pace with inflation. And many workers won’t actually see improvements in pay until well into this year because pay is the caboose of lagging economic indicators.

Company budgets for pay increases are pretty spartan compared to last year. Many employers went into 2009 with more money budgeted for pay increases, but wound up slashing those projected funds deeply as the economy continued to tank, said Linda Barrington, The Conference Board’s managing director of human capital. The hope is that there won’t be a repeat of last year’s budget slashing.

“Companies are out of the deep water but they haven’t reached the shore yet,” said Mitch Barnes, Atlanta-based principal in the human capital practice at Mercer, a global human resources and compensation consultant. “They’re being cautious because they don’t know when another wave will hit them.”

That said, workers in some parts of the country — and in certain industries — are likely to fare better than others.

Accountants, attorneys, consultants, nurses and other health professionals are among the groups of workers who should see fatter paychecks, experts say. Those in communications, banking and other finance-related fields won’t. Executives, in general, can expect to see bigger-than-normal declines in pay raises.

Places like Detroit and Charlotte, hard hit by auto and banking woes, respectively, will have to wait a little longer before workers there see improvements in their salaries. Atlanta workers, meanwhile, should reap at least some financial payoff after two tough years of doing without.

Some raises in Atlanta

Delta Airlines and UPS, two of Atlanta’s biggest employers, announced recently they would be granting raises.

Delta employees at the top of the scale will get pay raises of 5 percent to 10 percent. Those at lower levels will get raises of at least 2 percent. The raises go into effect Oct. 1. Some other employees will get performance-based raises, and union workers will get raises based on their contracts. The airline, which emerged from Chapter 11 bankruptcy in 2007, said the raises are part of its commitment to reach industry standard pay at the top of the scale by the end of this year.

Georgia’s two largest publicly-traded companies, Home Depot and UPS, both are restoring raises to management employees this year. Last year, Home Depot had frozen raises — though not bonuses — for officer-level managers, said Brad Shaw, senior vice president of corporate communications and external affairs. However, the retailer did not freeze raises or bonuses for store associates and lower-level managers, Shaw said.

Instead, as part of a corporate strategy, the company kept “success sharing” incentives for store employees, Shaw said. In fact, 2009 was a “record bonus year,” he said.

Last August, Home Depot CEO Frank Blake told Wall Street analysts during a discussion about second quarter earnings, “It is a source of great pride for the organization that, even in these tough times, we will have record success sharing in the first half, with 96 percent of our stores participating.”

UPS, on the other hand, had frozen managers’ raises last year. This month, the parcel delivery giant said it is restoring raises to about 40,000 managers at a cost of $100 million. The raises come despite plans to eliminate 1,800 positions, in part by offering early retirement to 1,100 managers, as well as potentially furloughing 300 pilots.

Coke’s plans for pay increases will be made public when the company files its proxy statement in early March.

Workers at SunTrust, which gave modest increases last year to employees overall but not to leadership, will get performance-based raises averaging about 2 percent.

Pressure won’t ease

“Atlanta’s a competitive market,” Barnes said, noting the diversity of industries. When compared to places like Dallas, Richmond, and Washington, D.C., Barnes said Atlanta is “an aggressive, proactive, entrepreneurial city. It’s an attractive place to live and we have a lot of talent here.”

Aside from the uncertainty of the economy, a bigger unknown for employers is the outcome over issues such as executive compensation and health care reform, Barnes said. Congress is still deadlocked over how best to fix the nation’s health care system. In the end, health care costs will be a big factor in corporate compensation budgets going forward.

“U.S. workers will continue to face downward pressure on their salaries and wages,” Barrington said.

Still, accountants, lawyers, consultants as well as workers in high tech and consumer goods should do well in securing pay raises this year in Atlanta and the rest of the country, Barnes said. Workers in manufacturing, real estate, retail, some education positions and other industries that have taken a beating in this recession will probably not see much in the way of better pay.

“They may be a little slower to come back,” Barnes said.


Staff writers Paul Donsky, Jeremiah McWilliams, Rachel Tobin Ramos and Kelly Yamanouchi contributed to this report.