Employees looking for larger pay raises than those they received last year will
have to wait another year, according a survey by Mercer Human Resource Consulting.
The survey found that employers plan to grant average pay increases of 3.3
percent this year, the same as they granted in 2003. For 2005, employers are
budgeting average pay increases of 3.5 percent, according to the survey of 1,600
"The year 2005 will mark the fourth consecutive year that pay increases
have averaged less than 4.0 percent," says Steven E. Gross, leader of Mercer's
compensation consulting practice. "From 1994 through 2001, annual pay increases
ranged from 4.1 percent to 4.4 percent, but they dipped below 4.0 percent in
2002 and have remained there since. Employers are seeing some signs of an improved
economy this year, but they're not ready to commit to higher pay increases yet."
The survey found that fewer employers are freezing pay levels this year. The
number of employers reporting salary freezes for one or more segments of their
employee population fell from 16 percent in 2002 and 12 percent in 2003 to just
5 percent in 2004.
With an improving economy, employers are focusing on attracting and retaining
employees, according to Gross. He says companies have changed their strategies
since the 1990s.
"Employers learned an important lesson in the late 1990s when the labor
market was so tight," Gross says. "Today, instead of attempting to
grow revenue by 'buying' the right talent on the market, companies are focused
on building talent from within. They are taking a long-term development approach."