Pay Raises To Remain Stagnant Despite Rising Costs

Savvy employees can get salary bumps even in tough times

September 11, 2008
With the economy showing no signs of a rebound, corporate costs rising, job cuts on the upswing and the heaviest job-cutting period of the year just beginning, it's probably not the best time to ask for a salary increase, right?

"Wrong," says workplace authority John A. Challenger, chief executive officer of global outplacement and business coaching consultancy Challenger, Gray & Christmas, Inc.

"Pay raises may be harder to come by in the current business environment, but those who can prove that they are an integral part of an organization's ability to survive the downturn and thrive during the next expansion have nothing to lose by asking," he said.

For most American workers, pay raises have averaged about 3.8 percent in 2008, virtually unchanged from the 3.7 percent salary increase averaged in 2007, according to new survey data from global consulting firm Mercer LLC. The rate is expected to remain the same in 2009.

These marginal increases do little to combat inflation, which some experts expect to approach four percent in 2009, or rising energy and food prices that have escalated 28 percent and 8.7 percent respectively over last year's cost.

In fact, overall consumer prices have climbed 5.5 percent from July 2007 to July 2008, the quickest rate of increase since May 1991, according to the Bureau of Labor Statistics.

"Americans' salaries are not keeping pace with inflation, which is tantamount to a salary decrease as far as their year-to-year spending power is concerned," said Challenger. "Unfortunately, employers are suffering from rising costs as well, and while more are starting to pass along these costs to consumers in the form of higher prices, it has not been enough to offset those increased costs. As a result, jobs are cut and wages frozen."

But, for employees hoping for an above average raise, simply needing the increase in pay will not cut it. Workers will have to prove their worth, as organizations are reserving the most significant boosts in compensation for their top performers.

The highest performing employees -14 percent of the workforce - can expect to see a 5.6 percent base pay increase in 2009, according to Mercer. Meanwhile, a separate survey by human resource consultant Hewitt Associates found that one-time performance-based pay grew by 10.8 percent in 2008 and is expected to climb another 10.6 percent in 2009.

"It is not surprising that companies are rewarding their top performing employees with above average pay raises," said Challenger. "Organizations turn to these employees to help them get through this slow economic time and they want to ensure they retain these workers for the long-term.

With new evidence suggesting that salary increases will remain stagnant for the rest of 2008 and into 2009, a well-planned raise negotiation may be the most effective plan for workers, according to Challenger.

"You have to enter the meeting with a well-thought-out justification for an increase in salary," he said. "It should be based solely on your performance, whether it is exceeding established goals, creating and implementing money-saving strategies, or bringing in new business. Support your points with numbers and specific examples and be prepared to answer questions or objections."

Challenger points out that even if you present a great case for the salary increase, some companies simply do not have the extra money to reward their best performers with higher salaries. "You might be able to negotiate some other benefit or at least put yourself in a good position for a salary increase when conditions improve," said Challenger.

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