Rising Health And Energy Costs Bite Into 2006 Pay Raises

As rapidly rising energy and health care benefit costs take their toll on businesses and consumers, many employers predict there will be little room in their budgets for substantial above-inflation pay increases in 2006, according to a study by Hewitt Associates.

The survey of 1,056 large companies showed that, on average, employers expect to award base salary raises of 3.6% to non-executive salaried employees, 3.8% to executive employees, 3.1% to union employees, and 3.5% to non-union hourly workers. Even with these pay increases, researchers predicted, the rapid growth in medical insurance premiums and gas prices will likely eat into employees’ paychecks over the next year.

At the same time, the study found, some employers are using variable pay to help make up for flat base pay increases. Results showed that, in 2005, average spending on variable pay as a percentage of payroll increased to 11.4%, from 9.5% in 2004. More than three-quarters of companies are now using some form of variable pay, the survey found, up from 51% in 1991.