Managers' raises to be lower, not so routine or frequent
Boston — White-collar workers at Bethlehem Steel Corporation used to receive across-the-board salary increases every year. Not anymore. Starting next year, the company told its office workers recently, any raises it gives will be based on an all-merit system. Like some other companies, the beleaguered steelmaker is also increasing the time interval between merit raises.
And office employees at Motorola Inc. are getting raises this year, but on average, they are smaller, by percentage, than the electronics company gave last year.
A wide variety of businesses are putting their budgets for white-collar raises on a diet. Many have trimmed the size of raises they are giving in 1982, and next year workers are likely to get even smaller raises, compensation experts say.
''The rate of increase in (white collar) pay is slowing dramatically,'' says Bruce Hanson, a principal in the compensation consulting firm Towers, Perrin, Forster & Crosby. ''This is a distinctly new phenomenon.'' In the past decade, he notes, the only other significant moderation in white-collar salary increases came as a result of government controls.
In addition to trimming overall budgets, companies are being much tougher about merit increases. They're deciding to pass over a larger number of employees, and are also widening the gap in the size of raise given top performers and average workers.
''It is the end of the age of entitlements,'' says Robert Ochsner, a partner at the Hay Group, another compensation consulting firm. Now rather than just give lip service to the idea of ''pay for performance,'' more managers will start enforcing such a policy. They will stop routinely giving raises to most workers, he says.
While some of the companies clamping down on white-collar salaries are like Bethlehem Steel, facing well-publicized financial problems, many are not in immediate money trouble.
''Competition is forcing top management to look at all the costs of production,'' explains Audrey Freedman, a labor economist at the Conference Board.''They are asking, 'Can we price our product a little lower' '' if white-collar salary costs are moderated?
Perhaps the most popular way to lower salary costs is cutting the budget for raises. Earlier this year, for example, Hewitt Associates, of Lincolnshire, Ill. , contacted 500 companies to see whether they had lowered their salary budgets for 1982. Some 35 percent had. ''Clearly companies are tightening up,'' a Hewitt official says.
The size of salary budget reductions varies by company. But at 250 of them contacted by Towers, Perrin, merit-raise budgets slipped for nonsupervisory white-collar workers - those entitled to overtime pay - from 9.5 percent last fall to 8.5 percent this spring. The planned raises for middle and top managers and others not entitled to overtime pay dropped from 9.7 to 8.7 percent.
As for lengthening the time period between merit raises, of the 500 companies surveyed by Hewitt Associates, about 150 have gone to longer intervals between such raises.
And the outlook for 1983 is for even smaller increases. The Towers, Perrin study found that companies are planning raises of 7.4 percent for nonsupervisory employees and 7.5 for middle and top managers.If anything, those numbers are likely to drop if, as expected, the economy remains weak through the rest of 1982.
''I wouldn't be surprised to see (the average raise budget) at 6 percent,'' says Mr. Hanson at Towers, Perrin.
Not all analysts see the raise pool dropping that much. ''We expect to see budgets in the 7.5 to 8.0 percent range,'' says Chuck Cumming, managing partner of Sibson & Co., a management consulting firm.
''I don't see anyone coming in with less than 7, and I see some coming in with 9 percent,'' adds Mr. Ochsner at the Hay Group. A merit pool of less than 7 percent wouldn't give a company enough leeway to give good-size raises to top performers.
And rewarding top performers is expected to be a major goal next year. During the '70s, many companies tried to keep most employees about even with inflation. ''That has really squeezed out a lot of the merit in white-collar salary programs,'' Mr. Cumming says.
''The only way to reward people above the underlying rate of inflation is to start getting more stringent on who gets (raises) and who doesn't.''
Some companies already seem to be moving in that direction. In a study of 100 companies in June, the Hay Group found that 6.4 percent of managers and professionals at the surveyed companies will not get raises this year, up from the 4 percent who were passed over last year and the 2 percent who are ordinarily left out even when the economy is in good shape.
Companies also are increasing the gap between the raises given average performers and the bigger raises going to especially valued employees. ''It is the intention of companies to give poor performers something like 5 percent while maintaining the (top performers) at above 10 percent, maybe 12 or 13 percent,'' Mr. Ochsner says. Recently the spread between top and average performers had narrowed to around 4 percent, he notes.
Of course, a tougher salary policy could cost companies some employees who are dissatisfied with their raises. But most experts think the risk is relatively small. ''It has sunk in with employees that times are not good,'' says Mr. Hanson.
But he adds that there may be a cost in employee morale. ''You lose some positve momentum - some of the luster comes off,'' he admits.