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December 16, 2004
No Big Changes in Pay-Raise Budgets

A pattern that found many U.S. employers making sharp cuts to their pay-increase budgets at the end of the year appears to be changing, according to a survey by Mercer Human Resource Consulting.

While four in 10 employers (41 percent) say they will make some type of adjustment to their 2005 pay-increase budgets, those changes will be very small this year--with reductions of just one- or two-tenths of a percentage point for some employee groups. That means average pay increases for 2005 are still projected to be around 3.5 percent, according to Mercer.

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Among employers that anticipate a budget change, pay increases for executives now will average 3.3 percent in 2005 instead of the 3.7 percent projected earlier this year. That results in an overall drop in projected executive pay increases from 3.8 percent to 3.6 percent when all employers in the survey are considered.

Mercer conducted the study, includes responses from nearly 500 employers, in October.

"Despite all the talk about the possibility of losing employees as the economy improves and the baby boomers retire, it hasn't happened yet--but it could happen soon, and employers are feeling this tension," says Steven E. Gross, leader of Mercer's compensation consulting practice. "For now, employers are able to maintain relatively low pay-increase budgets, despite the pressure to increase it based on labor movement once the economy improves."

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