With stock indexes reaching all-time highs in 2006, won't there be something for employees to get excited about as they open their 2007 paychecks? Not unless they're executives, who, as usual, will do better.
Base pay for the average worker, projected to increase 3.7 percent or so, will be basically flat after discounting for inflation, according to a consensus of salary surveys. And performance-based bonuses -- these days an anticipated financial shot in the arm for most of us, not an extra -- aren't expected to increase substantially.
"We've seen no real wage gains for most Americans over the past few years," says Sylvia Allegretto, an economist at the Economic Policy Institute in Washington, DC. "It looks like inflation might be 4 percent in 2007, so if workers get a 3.5 percent increase, they're still falling behind. The economy's expanding, workers are extremely productive, profits are at record highs, but from 2000 to 2005, real earnings were down about 3.5 percent."
It's no help that in the second half of 2006, economic growth slowed significantly. "The construction and housing bubble has been pricked, if not deflated," says Joseph Kilmartin, director of compensation at Salary.com.
Still, pay increases for those who exit and enter companies or receive promotions are often better than those in aggregate statistics, according to Steven Gross, a senior compensation consultant with Mercer Human Resources Consulting in Philadelphia.
Variable Pay: Nothing New Here
Though the trend leveled off several years ago, employers and their consultants portray performance-based pay as the up-and-coming compensation component that will help make up for the meager salary increases most workers will see in 2007. A statement accompanying a compensation survey from human resources consulting firm Hewitt Associates begins: "As base pay increases remain stable for 2007, more companies are relying on variable pay -- performance-related awards that must be re-earned each year."
However, the same survey reveals that participation of US companies in variable-pay plans has been essentially flat from 2001 -- when the proportion stood at 81 percent -- to 2006 at 80 percent.
Variable pay as a percentage of total payroll budget has actually declined slightly from 11.4 percent in 2005 to 11.2 percent in 2006 and a projected 11 percent in 2007, according to Hewitt.
So workers should take performance-based pay as a given and evaluate how their employers' bonus packages compare to the competition. According to Mercer, the most common forms of variable monetary rewards beyond the annual bonus are spot cash awards, project milestone awards and signing bonuses.
Pay in Many IT Occupations Struggles to Keep Pace with Inflation
In the information technology field, starting salaries will rise 2.8 percent in 2007, according to staffing firm Robert Half Technology. Such an increase, trumpeted as evidence of healthy demand for IT workers, might not even be enough to keep pace with inflation.
"Some technology occupations with stronger salary growth are being offset by others with lower growth," says Katherine Spencer Lee, Robert Half executive director.
Indeed, there will be substantial variation in 2007 pay increases across IT occupations, according to Robert Half's projections. While Web developers will receive an average hike of 4.2 percent, starting help-desk workers will see their pay rise just 0.8 percent, or an average $250, to $37,000. Offshoring of help-desk services is a likely contributor to these feeble wage increases.
In Salary.com's survey of salary budget increases, technology jobs garnered most of the good news. Professionals working in computer and electronics manufacturing, computer systems design, and scientific and technical services all are expected to see raises of 4 percent to 5 percent.
Executives Still Garner the Biggest Salary Increases
More old news is likely to continue making headlines in 2007: High-ranking employees are the most likely to receive relatively large merit increases.
For example, in Mercer's analysis of the 2006 distribution of employers' performance-rating systems, 38 percent of executives scored in the highest category, while only 22 percent to 24 percent of staff professionals and workers in clerical, administrative, production and service roles placed in the top band, which is tied to the biggest percentage raises.
"Higher-level positions are more visible," explains Gross. "If executives don't produce, they have a greater chance of being fired."
