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July 20, 2004
Employers Remain Cautious About Pay Raises
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.

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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 employers.

"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."

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