Pay Raises on Skimpy Side at 4%--Same as Last Year

In good times or bad, larger employers in California are showing a pattern of giving modest pay raises to most workers, reflecting an intense desire by companies to keep a lid on costs.

A poll released Thursday found that employers in the state have budgeted pay raises averaging about 4% for this year. That is the same percentage as last year and barely higher than earlier years in the decade, when economic conditions and corporate revenues were weaker.

The survey results mean there is little fear of wage inflation. But for workers, the implications could be unsettling.

The results of the California survey by William M. Mercer Inc. are consistent with national trends. Still, they surprised some of the analysts at the national human resources consulting firm.

“I thought employers would be offering [raises of] 5% or 6%,” said Charles King, a senior consultant at Mercer’s San Francisco office. “But they’re not. Employers are absolutely fanatical about controlling costs.”

Analysts say that in past decades, pay raises fluctuated more with economic cycles. When unemployment dropped, as it has in the last couple of years, workers generally found it easier to demand and get bigger raises.

But in the 1990s, King said, employers are addressing the dwindling labor supply situation by more selectively linking pay to job type and performance. So even though the average raise pool this year is 4%, King said, most employees can actually expect less than that, while top performers may see even double-digit increases.

That may have more workers grumbling, but not among those whom the company values the most. Mercer’s survey this year said that merit is by far the most important factor in determining raises. Competitors’ pay is seen as a less important factor, and the cost of living--once a major determinant in figuring pay raises--was hardly mentioned by many employers.

If unemployment continues to shrink in California, wages could still go up higher than what has been budgeted. But so far, that hasn’t happened.

“Management has been successful in exerting its control or will over the work force,” King said. “There is an edge that wasn’t there before.”

Carolyn DelGrande is human resources manager at Pyxis Corp., a San Diego-based medical equipment maker and one of 232 employers surveyed by Mercer. DelGrande confirmed that her company is budgeting pay raises averaging 4% this year, same as in 1997.

“Regardless of the overall revenue success of the company, there’s still a heightened awareness of budget and cost control,” she said. “And that trickles down to many areas, including merit raises.”

Despite there being no change in the pay raise pot, DelGrande said turnover has not increased at Pyxis, which employs about 450 people in California. “We’re paying competitively and constantly assessing that it’s competitive,” she said.

Pyxis and other respondents to Mercer’s survey gave strong marks to the economy. Nearly 75% of those polled said they believe the economy is getting better, and 52% said they expect to add employees this year. The survey was conducted from March to May, but the economy has shown signs of greater vulnerability in more recent months.

The survey also suggested that employers continue to be interested in incentives other than money to attract and retain workers. For example, 57% of the firms responding to the survey said they have increased their training budgets this year.

This is the 16th year that Mercer has surveyed California pay trends. This year, it surveyed 232 public and private employers, generally larger ones, across a broad spectrum of industries.

*

Don Lee can be reached by e-mail at don.lee@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Flat Line

Despite the improved economy in the last couple of years, California employers are not budgeting more for pay raises, a trend analysts say reflects a fanatical drive to hold down costs.

1999*

Average pay raises: 4.1%

*Estimated

Source: William M. Mercer Inc. surveys