Fewer Workers Find Fatter Paychecks in the '90s
Wage increases at large companies lag behind fast-growing small, mid-size firms
BOSTON — THE annual pay increase, the reliable 10-percent jump for professionals that seemed so much a staple of the `80s, has slimmed down and even disappeared for some in the tight-budget `90s.
Low inflation and a struggling economy are the two main culprits. But even with recovery underway, companies may be slower to reinstitute raises than in the past, says Andrew Richter, a principle at Towers Perrin in New York, a worldwide human resources and management consultant firm. Since salaries almost never go down, employers will make more cash compensation available to workers through bonuses, incentive programs, and lump-sum plans.
"Many companies, if they have more money to spend on employees, will try to structure it differently than a base salary which is like an absolute promise and instead make it more like a performance-contingent promise," Mr. Richter says.
This enables companies to reward employees when business is good, without promising to pay top dollar year in and year out.
The net effect is to break what had become an entitlement mentality among many workers, who came to expect a pay increase each year irrespective of their performance.
As part of this reeducation process, employers are pitching new pay programs to their employees in the context of "total remuneration" - wages, bonuses, and benefits. Historically, workers have looked at wages as separate from total compensation, attaching greater value to the dollar in a paycheck than to a dollar of benefits. But as health-care costs spiral upward, currently outstripping the cost of living threefold, benefits have taken on increasing significance. A number of unions have even opted to f orego wage increases in order to keep out-of-pocket health-care costs from growing, according to an AFL-CIO spokesman.
The value of benefits relative to wages and salaries has mushroomed since the 1950s when it stood at about 15 percent. Now that figure is more than 36 percent and rising, according to the United States Chamber of Commerce. Of all remuneration costs, health care has risen the most and fastest.
If an employer cannot make up the rising costs through increased productivity, then they come out of the worker's pay raise or in higher prices, says Tom Breznau, a professor at Kalamazoo College in Kalamazoo, Mich.
As companies await health-care reform in Washington, many are reassessing benefit plans and in some cases cutting back coverage, passing more of the cost on to the employee.
"Today, employers are much more hesitant to put on additional benefits unless they perceive that there's a good return on their investment in terms of employee loyalty or employee satisfaction," Richter says.
Another way companies are trimming costs is not to hire new labor but to have existing employees work overtime. This avoids the expense of training new workers and of providing for additional pension plans and health-care coverage.
Even though longer hours mean most workers will take home more pay this year, most are not being paid more per hour. According to one Washington think tank, about 80 percent of workers saw real wages actually fall between 1979 and 1991.
Weighing on the minds of workers being asked to accept smaller wage increases are the thousands already out of work. Many of them, after months of unemployment, return to the work force at lower pay.
"Many of the middle-class manager types are finding it very difficult to come back up to the compensation level they were at," Professor Breznau says.
With a more mature economy, the rapid growth rates of recent years may be hard to repeat. "No matter what we do with the economy, we can't turn it back into its adolescent stage again," Breznau says. Difficult as it may be for people to accept 3 or 4 percent pay raises, it is a more normal situation, he says.
Even so, some small and medium-sized businesses across the spectrum of industries are expanding rapidly, Breznau adds. Growing at 15 to 30 percent a year, these companies are avoiding the "inefficiencies of scale" of their larger competitors, experts say. Instead, they are instituting total quality management techniques to stay efficient, keep workers satisfied, and offer good compensation.