Firms Draw Flak As They Hold Back On US Pay Hikes
NOTICE to workers: Don't expect much improvement over last year's pay raises.Skip to next paragraph
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Instead, compensation experts say increases for wage earners will remain at 2 to 3 percent this year. Accentuating a growing gap between white-collar and blue-collar workers, salaried employees are faring better. Many will get merit raises, averaging 4 percent, and bonuses, averaging 5 percent. The combined 9 percent gain for those who get these raises stands 1 percentage point higher than last year.
The increase in wages will remain modest, because the United States is skating on thin economic ice. With the US close to a recession, corporations are cautious in their hiring and are still keeping a firm grip on expenses. ''This is not a time when corporations can be bold about compensation,'' says Audrey Friedman, a labor economist with her own firm in New York.
The modest pay raises come at a time when politicians such as Pat Buchanan and Sen. Bob Dole are raising questions about corporate greed. Mr. Buchanan, in his speeches, castigates corporations for reporting higher profits but squeezing their workers. It is a theme that Mr. Dole tried out in New Hampshire.
Though the labor movement generally does not back the Republicans, it welcomes their message. ''We don't like Pat [Buchanan], but we know what he's saying and why he is appealing to people,'' says Paul Boldin, research director for the International Brotherhood of Teamsters in Washington.
The media have also turned sharply on the corporate world. Last week, Newsweek called some of the top chief executive officers ''corporate killers.'' It displayed their photos on the cover with the number of layoffs from each company matched with the relatively high salary of the CEO. ''Companies are becoming very sensitive to the blame they are getting for laying people off when they have high profits,'' says Ms. Friedman.
Some of that sensitivity may have rubbed off on corporate giant IBM Corp., which has reduced its work force by 132,000 jobs since 1985.
On Feb. 6, IBM sent a memo to its employees telling them that their ''variable'' pay, which includes merit pay and bonuses, could increase by an average of 8 percent. IBM says its internal studies show that its competitors plan on increasing pay by only 4 percent.
But Charles Peck, a compensation specialist at the Conference Board, says Big Blue's largess is about what surveys have shown the salaried work force can expect this year. The move ''is interesting since IBM is coming out of some problems, but it is not that unusual compared to what other companies are doing,'' he says.
In a survey of 1,420 organizations, compensation specialist Towers Perrin found that the average merit increase will be about 4.1 percent for top management, about 3.9 percent for employees considered exempt - that is, those who don't get overtime pay - and 3.8 percent for workers who do get overtime. Compensation experts say it is rare for firms to give cost-of-living raises anymore.
Companies opt for variable-pay raises
IBM joins an increasing number of companies that are using bonuses or ''variable pay'' to reward employees. Mr. Peck says surveys show companies plan on giving about a 5 percent bonus to exempt and management employees. The advantage of giving a bonus is that it does not become part of a company's salary structure. ''If I raise your salary by 4 percent, it is 4 percent higher forever and I am now operating off that base,'' he points out. But a bonus can be withheld when business is off.
The Teamsters' Mr. Boldin argues that corporate profits are being shared among fewer employees as a result of the steady downsizing. He points to AT&T Corp., where chairman Robert Allen received stock options and other pay worth $16 million last year at the same time the company was announcing 40,000 layoffs. ''The morale among workers must be horrible,'' Boldin says.
This week, AT&T's Allen lashed out at critics in a memo to employees. He pointed out he had taken a 20 percent cut in cash pay. This lowered his base salary to $2.67 million. Allen also pointed out his stock options will only be valuable if the company performs well in the future. And, he said that he was saddened by the job losses caused by the company's restructuring.
In fact, with all the publicity over the job losses, economist Friedman expects companies may stop making announcements when they shut down facilities. ''The announcements are made to impress shareholders, but they don't have to be made,'' she explains.
Boldin, however, says the unions are acutely aware of the shutdowns. The major labor issue is job security, not pay raises.
This is likely to be reflected in some major labor contracts up for renewal this year, including the auto and steel workers' contracts which are up for renewal this fall. For example, workers at a General Motors brake plant in Dayton, Ohio, are threatening to strike if they are not satisfied in talks with management. Wages are not a major issue.