Pay Raises in 2010: Would You Believe 3 Percent?

By John Hollon

Jul. 21, 2009

One great thing about the large management and HR consulting firms is that they do a lot of interesting surveys, and this recent one by Watson Wyatt is no exception.

Here’s what I’m talking about: “Raises for U.S. workers are expected to rebound in 2010, following a year in which many companies slashed raises in the wake of the recession,” according to the Watson Wyatt 2009/2010 U.S. Strategic Rewards survey report that was just released.

Like most surveys done by the big consultants, this one is broad, deep and timely. It covers 235 U.S.-based employers that span all industries and have a minimum of 1,000 employees each. And, the survey was done pretty recently–from April 6 to May 15.

The key survey finding is that “companies are projecting median merit increases of 3.0 percent for 2010”; that compares with the 3.5 percent merit increase that companies originally projected last year for 2009, before the onset of the recession. Of course, that original 3.5 percent increase went down the toilet with the economy, and as the Watson Wyatt report notes, “Now, companies say median merit pay increases will [only] be 2 percent in 2009.”

I’ll leave it to my favorite comspensation expert–Ann Bares of the Compensation Force and Compensation Cafe blogs–to make sense of this with her special insight and analysis, but what jumped out at me was something from a separate companion survey of nearly 900 companies conducted by Watson Wyatt Data Services. It found that “only 10 percent of companies are planning no pay raises for workers in 2010 compared to 25 percent this year.”

That really surprises me, because I thought that a lot more than just 25 percent of companies deep-sixed raises during the Big, Bad Recession of 2009. In fact, that 25 percent figure sounds absolutely incredible when you consider all you heard about furloughs, salary cuts, buyouts, layoffs and all manner of workforce cuts this year.

I’m also surprised by the notion of 3 percent raises for 2010, because as much as I wish it were so, I  question whether businesses will actually feel confident enough in the economy to go that far when they start their 2010 budget planning here soon. My feeling is companies will be a lot more conservative than that, especially since no one really knows if we have hit bottom on the downturn yet.

“This has been a very difficult year for both employers and their workers,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt, in a gigantic understatement. “But there is some good news on the horizon. Employers plan to give larger raises next year, and many plan to reinstate previously cut pay raises as planning for an eventual economic recovery continues.”

Well, I really hope there is good news on the horizon, as Laura Sejen believes, but I’m not ready to jump on that bandwagon just yet. Color me skeptical that the economic recovery is as close at hand as she says it is.

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