For Many, Inflation to Outpace ’06 Raises

Looking for a big bump in your paycheck next year? Don’t hold your breath.

For the second year in a row, wage and salary increases will average around 3.5% in 2006, several compensation experts predict.

The good news is that the average paycheck -- in theory -- should keep up with inflation, which is expected to be about 3% next year.

The bad news is that most employees will get less than 3.5%. That average is driven up by very high raises -- as much as 9% -- expected in a few fields with acute staff shortages, including nursing and financial services.

“If you’re not in a high-demand position or covered by a union agreement, maybe you’ll get 1% or 2%, if anything at all,” said John Putzier, president of FirStep Inc., a Pittsburgh-area human resources firm. “It’s going to be spotty.”

On top of that, increases in health insurance premiums deducted from those paychecks will reduce -- if not wipe out -- the raises many do get. According to a recent Henry J. Kaiser Family Foundation survey, premiums for family coverage are expected to jump 9.2% next year.

“Some employees probably won’t even break even,” Putzier said.

Projections vary somewhat for different types of employees -- but not by much. World at Work, a Scottsdale, Ariz.-based nonprofit human resources organization, predicts raises of 3.7% for hourly workers, 3.8% for salaried workers and 3.9% for executives.

To Andrew Stern, president of the Service Employees International Union, the numbers underscore the fact that workers with collective bargaining agreements start from “a higher plateau.”

The union represents 1.8 million nurses, home care workers, public employees and janitors in the U.S., including 600,000 employees in California.

“Three percent of a higher salary is more than 3% of a smaller salary, and having your employer pay 80% of your healthcare costs is better than 75%,” he said.

The salary increases reflect a continuing push by corporations to control costs after the reversals many experienced during the 2001 recession, said Charles Peck, a compensation specialist at the Conference Board, a New York business research organization. Salary hikes are big fixed costs, he said -- “because they’re forever.” To contain those costs, many companies have shifted to performance-based bonuses, he said. Unlike a traditional salary increase, incentive pay is re-earned each year depending on the performance of the worker and the company.

These variable incentives can have a “much bigger upside potential” for workers than traditional raises, “but it isn’t guaranteed,” said Amy Jantz, a compensation manager at World at Work.

Still, Jantz said, the good news was that more of the employers she surveyed gave their workers some sort of raise this year.

“The zeros have been cut in half,” she said. This year only 8% of employers reported that they froze salaries or cut pay, compared with 16% who said they took one of those steps last year, Jantz said.

Kathy Van Neck, a compensation analyst with Hewitt Associates, said that more employers were offering raises, and that those who weren’t generally were offering bonuses.

Even with many employers basing raises on performance, Van Neck said, “just shy of 90% of those who are eligible for a raise get one.”